Sometimes a miss is just a miss. PulteGroup Inc. (PHM) reported weaker-than-expected third-quarter earnings on Thursday, yet the stock climbed 4.29% to $117.73 by the time of publication. Investors, it seems, had already braced for bad news and found the details less grim than the headline numbers suggested.
The homebuilder earned $2.53 per share, short of the $2.66 analysts expected. Revenue fell nearly 10% year over year to $3.974 billion, below the $4.205 billion consensus. Not great. But in a housing market where mortgage rates keep doing their best impression of a rollercoaster, the bar was low.
Deliveries and Orders: The Affordability Chill
Home deliveries dropped 9% to 6,876, slightly below company guidance. Net new orders declined 6% to 6,208, and community traffic fell 14%. The pain was uneven: orders from first-time buyers fell 9%, move-up buyers dropped 14%, but active adult orders actually rose 11%. Apparently, retirees are less fazed by borrowing costs, or maybe they're just paying cash.
Elevated mortgage rates, inflation, and affordability concerns continued to pressure demand. Fewer sales of speculative homes also weighed on closings. The backlog, however, edged up to 10,298 homes valued at $6.4 billion, compared with 9,888 homes worth $6.2 billion a year earlier. Average community count rose 7% to 1,077, while speculative home inventory declined 10%.
Margins Narrow, but Costs Ease
Gross margin contracted 140 basis points to 24.8%, though construction costs declined 5% to $75 per square foot. Financial services pretax income increased to $46 million, and mortgage capture improved to 85%. PulteGroup repurchased $350 million in shares during the quarter, bringing year-to-date shareholder returns through buybacks and dividends to $1.2 billion. The company ended the quarter with $1.4 billion in cash and expects approximately $1 billion in full-year operating cash flow.
What's Next: Q4 Outlook
For the fourth quarter, PulteGroup expects community count to increase 3% to 5%. Management projects 7,000 to 7,500 home closings and 27,000 to 27,500 deliveries for the full year. Average selling prices are expected to land between $550,000 and $560,000, with fourth-quarter gross margins of 24% to 24.5%. Full-year gross margin guidance remains at 24.5% to 25%.
The CEO's Take: Americans Are Pausing
On Thursday's earnings call, CEO Ryan Marshall said surging mortgage rates, persistent inflation, global tensions, and weakening consumer confidence prompted more Americans to put their home searches on hold, particularly in September. He added that the slowdown continued into October, with first-time buyers facing the greatest pressure from higher borrowing costs.
PulteGroup expects elevated mortgage rates to keep pressuring demand, though lower borrowing costs could improve buyer confidence. Stronger markets in Florida and parts of the Midwest helped offset weakness elsewhere. Management plans to protect margins through disciplined pricing, tighter construction controls, and production aligned with demand. The company may also reduce land spending in 2027 and abandon optioned lots that fail to meet return targets.
Despite near-term challenges, PulteGroup remains optimistic about long-term housing demand. For now, the market seems willing to look past the miss and focus on the company's ability to navigate a tough environment. Sometimes that's enough.
