PulteGroup Inc. (PHM): 2Q26 Recap: Shift to BTO, Growth in Active Adult Helps Offset Demand Headwinds & Supports Further Margin Improvement

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PulteGroup Inc. (PHM): 2Q26 Recap: Shift to BTO, Growth in Active Adult Helps Offset Demand Headwinds & Supports Further Margin Improvement

potentially further out as well. This

reflects the benefit of geographic shift, with greater closings in more profitable Florida

markets as well as lower than expected discounts on intra-quarter spec deliveries. More

specifically, the transition to BTO sales resulted in a 50bps sequential decline in

incentives to 10.4%, implying 1Q was the high-water mark here too. These benefits were

partially offset by a lower ASP given fewer closings in the Northeast and West. Build

costs decreased 5% YOY and 1% sequentially to $75/sqft. Pulte is keeping an eye on oil

prices given exposure across a wide range of derivative products, including the impact

on the cost of land development, and highlighted this as the greatest risk to future

inflation. Although the magnitude and sustainability of any move in energy prices will

depend on the duration and impact of the ongoing geopolitical conflict, we believe the

company’s shift to BTO along with exposure to move-up and active adult, which

accounted for a combined ~60% of 2Q orders leaves them well positioned to offset

headwinds. In the near-term, Pulte reiterated their expectations costs will be down

slightly vs last year despite the increase in lumber prices. We model the 3Q gross margin

(incl. amortized interest) at the high-end of the 24.5-25.0% guide, despite normalizing

mix shift and management’s expectations incentives will remain elevated. The same is

true of our full year estimate at 24.8%, with potential upside as company-specific efforts

come through. SG&A/sales reflected the impact of an 8% decline in deliveries along with

a lower ASP.