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PulteGroup's (PHM) Q3 & 2021 Guidance Trimmed, Shares Down

PulteGroup (PHM) witnesses intense supply chain disruptions in the second half of 2021.

This story originally appeared on Zacks

PulteGroup, Inc.’s PHM shares fell more than 6% on Sep 8 after it reduced the third quarter and full-year 2021 guidance. The company has been witnessing intense supply chain issues in the second half of 2021.

It now expects third-quarter closings to increase 8% year over year to 7,000 homes compared with 7,300-7,600 homes expected earlier. For the full year, it expects closings to increase within 19-21% or 29,250-29,750 homes versus 30,500 homes projected earlier.

Owing to reduced closing volume, and changes in the geographic and buyer mix of homes expected to close in the third quarter, PulteGroup now expects gross margin within 26.4-26.6% and SG&A of 9.9% of home sale revenues. Earlier, the company expected third-quarter gross margin of 26.8% and SG&A (as a percentage of home sale revenues) of 9-9.5%.

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President and chief executive officer of PulteGroup, Ryan Marshall, said, "We continue to work closely with our suppliers, but shortages for a variety of building products, combined with increased production volumes across the homebuilding industry, are directly impacting our ability to get homes closed to our level of quality over the remainder of 2021."

He continued, "Industry disruptions have also impacted the timing of community openings such that, even though we continue to limit sales pace in many communities in the face of ongoing buyer demand, our average community count for the third quarter is expected to be down approximately 15% from last year."

For 2021, it expects community count to be down 5-10% from the last year. Nonetheless, it anticipates community count to expand gradually in 2022.

Despite being focused on various cost-management initiatives, PulteGroup and homebuilders like KB Home KBH, Lennar Corporation LEN, D.R. Horton DHI, and others are facing supply and inflation issues.

Also, a shortage of buildable lots, skilled labor, and available capital for smaller builders are limiting home production, thereby lowering the inventory of homes, both new and existing. The labor market has tightened due to limited availability of labor that is arresting the rapid growth in housing production. If the supply picture does not improve, prices could go up, thereby affecting affordability.

That said, PulteGroup — which belongs to the Zacks Building Products - Home Builders industry and a Zacks Rank #3 (Hold) company — remains optimistic about the industry’s prospects, given persistent economic recovery, a positive job market, low-interest rates, and a high level of consumer confidence.

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