PulteGroup, one of the nation's largest home builders, is expected to report earnings and revenue below year-ago levels on Thursday.
As everyone's know, the housing market getting whacked by rising mortgage rates -- and is on course for its fourth straight year of low sales. So it is no surprise to investors that PulteGroup's earnings could fall below year-ago levels.
But what's really important, at this point, is what the company will say about its profit margins.
The company, the second-largest home builder by market capitalization, will report third-quarter results before the market opens on Thursday. Analysts expect earnings of $2.65 a share on roughly $4.2 billion in revenue, down from $2.96 a share on $4.4 billion of sales.
PulteGroup is far from the only builder facing declining earnings. Analysts expect that all 14 public home builders in the iShares U.S. Home Construction exchange-traded fund will report lower earnings per share in 2026 than they did in 2025, according to FactSet estimates.
Those expectations come as rising mortgage rates -- up to 7.4% as of last week from just below 6% in February -- push the long-awaited housing market revival down the road. Maybe way down the road.
That's one reason why the iShares fund is nearly 12% lower than it was at the end of 2025. Meanwhile, as of early afternoon on Tuesday, PulteGroup shares were down 2.8% this year, on pace for its worst year since 2022, per Dow Jones Market Data.
With a drop in earnings below last year's levels all but guaranteed, profit margin is the number to watch -- both in PulteGroup's earnings and those of builders more broadly. Analysts polled by FactSet foresee PulteGroup reporting a 24.9% margin on home sales, down from 26.2%.
The metric has become a point of focus for investors as builders have offered incentives to buyers to keep home purchase orders flowing, says Ryan Gilbert, a BTIG analyst covering home builders. PulteGroup's margins, though lower than they were in prior years, have held up better than other builders as PulteGroup has balanced the need to keep home sales high with profit, notes Gilbert.
That's the good news.
Stable margins would be a leading sign that the worst is over for builders -- and PulteGroup. But given mortgage rates' recent climb higher, investors will likely be waiting for signs of a bottom.
Industry data suggests the kinds of buyer perks that keep home sales flowing, but weigh on builder's margins, ramped up in October. More respondents to the National Association of Home Builders' industry sentiment survey -- 43% -- reported cutting prices than any month since the trade group began to ask the question in 2020. Just under two-thirds of builders, meanwhile, reported offering buyer sales incentives.
That puts extra weight on any guidance PulteGroup gives about its margins in the coming quarters. Analysts foresee a fourth-quarter margin on home sales of 24.8%, and are looking for a roughly 25% margin in 2027, up from an anticipated 24.8% margin this year.
Comments from management about margins -- and buyer demand in the face of higher mortgage rates -- could make or break those expectations.
Gilbert, the BTIG analyst, foresees mortgage rates remaining high through 2027, he says. "That's going to eat into margins" across all builders, Gilbert adds. "It just doesn't seem like consensus has built that into their numbers yet."
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