PulteGroup Inc., a leading home builder, anticipates a prosperous year ahead after experiencing a surge in home buying activity towards the end of 2023. However, the company’s stock took a hit due to lower-than-expected fourth-quarter revenue caused by declining home closings and prices.
Quarterly Profit Exceeds Expectations
Despite the revenue setback, PulteGroup reported quarterly profit that surpassed expectations. Additionally, the company announced a $1.5 billion increase to its stock repurchase program, representing nearly 8% of Pulte’s market capitalization.
Stock Slump
PulteGroup’s stock (PHM, +0.89%) declined by 0.9% before the market opened, reversing an earlier premarket gain of as much as 0.9%.
Optimistic Outlook
Chief Executive Ryan Marshall stated that buyer activity significantly increased as interest rates decreased throughout the fourth quarter. In fact, December proved to be the highest sales month of the quarter. Marshall also expressed optimism about the future, mentioning a strong job market, lower interest rates, and a limited inventory of existing homes as factors that could drive heightened homebuying demand in 2024.
Financial Performance
Net income for PulteGroup declined to $711 million, or $3.28 per share, compared to $882.2 million, or $3.85 per share, in the same period last year. In spite of this decline, the earnings per share still exceeded the FactSet consensus of $3.21.
Furthermore, revenue saw a 15.5% decrease, amounting to $4.29 billion, falling short of the FactSet consensus of $4.47 billion.
PulteGroup remains hopeful for a robust 2024, fueled by positive market conditions and increased homebuying demand.
Home Closings Decrease, Average Sales Price Falls
The latest data shows a decline in home closings, with a drop of 13.9% to 7,615 homes. This is below the FactSet consensus of 8,026. Additionally, the average sales price of homes that were closed fell by 2.5%, from $561,000 to $574,000.
Positive Trends in Net New Orders
Despite the decrease in home closings, there is a positive trend in net new orders. The number of net new orders increased by an impressive 57% to 6,214 homes. This exceeds expectations, which were initially set at 5,584. This growth can be attributed to an improved selling environment and a decrease in cancellations.
Stock Repurchase Activity
CEO’s Perspective
When announcing the increased stock repurchase program, CEO Marshall expressed optimism about continued strong cash flow from operations. He emphasized the company’s commitment to returning excess funds to shareholders as a longstanding principle.
Market Performance
Pulte’s stock has experienced significant growth, rising by 46.8% over the past three months leading up to Monday. In comparison, the iShares U.S. Home Construction ETF ITB has seen a rise of 39%, while the S&P 500 index SPX has advanced by 18.3%.