PulteGroup Reports Second Quarter 2019 Financial Results

Published

Net Income of $0.86 Per Share Net New Orders Increased 7% to 6,792 Homes Value of Net New Orders Increased 7% to $2.9 Billion Home Sale Revenues of $2.4 Billion Homebuilding Gross Margin of 23.1% and Operating Margin of 12.3% Backlog of 11,793 Homes Valued at $5.1 Billion Company Retired $274 Million of Senior Notes and Repurchased $83 Million of Stock During the Quarter ATLANTA--(BUSINESS WIRE)-- PulteGroup, Inc. (NYSE: PHM) announced today financial results for its second quarter ended June 30, 2019. For the quarter, the Company’s reported net income was $241 million, or $0.86 per share. Prior year reported net income for the second quarter was $324 million, or $1.12 per share, which included $38 million of pretax benefit associated with insurance adjustments, $26 million of pretax land sale gains, and $17 million of net tax benefits. Adjusted net income for the prior year period was $259 million, or $0.89 per share. “PulteGroup’s second quarter results demonstrate our ongoing success in running a highly profitable, high returning business, with a clearly articulated approach to capital allocation,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup. “Consistent with our stated objectives, our continued strong operating performance allowed us to invest over $850 million in total land spend in the quarter, while also using almost $400 million of available cash for dividends, share repurchases and debt reduction.” “As reflected in our results, consumer activity remains high as homebuyers are returning to the market following a period of softer demand in the back half of 2018,” added Mr. Marshall. “Given the low interest rate environment, in combination with supportive economic, employment and demographic trends, we are optimistic about housing demand as we advance through the remainder of 2019.” Second Quarter Results Home sale revenues for the second quarter decreased 2% from the prior year to $2.4 billion. Lower revenues for the quarter reflect a 1% increase in average sales price to $430,000, offset by a 3% decrease in closings to 5,589 homes. Gross margin for the second quarter was 23.1%, compared with 24.0% in the second quarter of 2018. SG&A expense for the quarter was $259 million, or 10.8% of home sale revenues. Prior year reported SG&A expense was $226 million, or 9.2% of home sale revenues, inclusive of the $38 million benefit relating to insurance adjustments recorded in the period. Adjusted SG&A expense for the prior year period was $264 million, or 10.8% of home sale revenues. In the second quarter, the Company recorded land sales gains of $1.4 million compared with prior year gains of $27.3 million. Second quarter 2018 land sale gains included $26 million relating to the sale of two large land parcels completed in the period. Net new orders for the second quarter increased 7% from the prior year to 6,792 homes. The dollar value of net new orders also increased 7% over the prior year to $2.9 billion. For the quarter, the Company operated out of 877 communities. Unit backlog at the end of the quarter was 11,793 homes, which is comparable with prior year backlog of 11,845 homes. The average sales price of homes in backlog was $433,000, which is down 1% from last year’s average sales price in backlog of $439,000. The total value of homes in backlog was $5.1 billion. Second quarter pretax income for the Company’s financial services operations increased 21% over the prior year to $25 million. Financial services benefitted from higher closing volumes, as mortgage capture rate increased to 81% from 76% in the prior year, as well as higher net margins on mortgage originations. For the quarter, the Company reported $80 million of income tax expense, representing an effective tax rate of 24.9%. Second quarter tax expense in the prior year was $85 million, or an effective tax rate of 20.8%, which included the net benefit of $17 million of tax adjustments recorded in the period. The adjusted tax rate for the prior year period was 25.0%. During the quarter, PulteGroup repurchased 2.6 million of common shares for $83 million, or an average price of $31.82 per share. In the second quarter, the Company also used available cash to retire $274 million of its 4.250% Senior Notes due 2021. The Company incurred a pretax charge of $4.8 million in the quarter associated with the early redemption of these notes. A conference call discussing PulteGroup’s second quarter 2019 results is scheduled for Tuesday, July 23, 2019, at 8:30 a.m. Eastern Time. Interested investors can access the live webcast via PulteGroup’s corporate website at www.pultegroup.com. Forward-Looking Statements This press release includes “forward-looking statements.” These statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or implied by, these statements. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “project,” “may,” “can,” “could,” “might,” “should”, “will” and similar expressions identify forward-looking statements, including statements related to any impairment charge and the impacts or effects thereof, expected operating and performing results, planned transactions, planned objectives of management, future developments or conditions in the industries in which we participate and other trends, developments and uncertainties that may affect our business in the future. Such risks, uncertainties and other factors include, among other things: interest rate changes and the availability of mortgage financing; competition within the industries in which we operate; the availability and cost of land and other raw materials used by us in our homebuilding operations; the impact of any changes to our strategy in responding to the cyclical nature of the industry, including any changes regarding our land positions and the levels of our land spend; the availability and cost of insurance covering risks associated with our businesses; shortages and the cost of labor; weather related slowdowns; slow growth initiatives and/or local building moratoria; governmental regulation directed at or affecting the housing market, the homebuilding industry or construction activities; uncertainty in the mortgage lending industry, including revisions to underwriting standards and repurchase requirements associated with the sale of mortgage loans; the interpretation of or changes to tax, labor and environmental laws which could have a greater impact on our effective tax rate or the value of our deferred tax assets than we anticipate; economic changes nationally or in our local markets, including inflation, deflation, changes in consumer confidence and preferences and the state of the market for homes in general; legal or regulatory proceedings or claims; our ability to generate sufficient cash flow in order to successfully implement our capital allocation priorities; required accounting changes; terrorist acts and other acts of war; and other factors of national, regional and global scale, including those of a political, economic, business and competitive nature. See the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and the Company’s other public filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our businesses. The Company undertakes no duty to update any forward-looking statement, whether as a result of new information, future events or changes in PulteGroup’s expectations. About PulteGroup PulteGroup, Inc. (NYSE: PHM), based in Atlanta, Georgia, is one of America’s largest homebuilding companies with operations in more than 40 markets throughout the country. Through its brand portfolio that includes Centex, Pulte Homes, Del Webb, DiVosta Homes, American West and John Wieland Homes and Neighborhoods, the company is one of the industry’s most versatile homebuilders able to meet the needs of multiple buyer groups and respond to changing consumer demand. PulteGroup conducts extensive research to provide homebuyers with innovative solutions and consumer inspired homes and communities to make lives better. For more information about PulteGroup, Inc. and PulteGroup brands, go to pultegroup.com; www.pulte.com; www.centex.com; www.delwebb.com; www.divosta.com; www.jwhomes.com and www.americanwesthomes.com. Follow PulteGroup, Inc. on Twitter: @PulteGroupNews.   PulteGroup, Inc. Consolidated Statements of Operations ($000’s omitted, except per share data) (Unaudited)                   Three Months Ended   Six Months Ended   June 30,   June 30,   2019   2018   2019   2018 Revenues:               Homebuilding               Home sale revenues $ 2,403,559     $ 2,450,054     $ 4,353,415     $ 4,361,652   Land sale and other revenues 29,469     66,904     32,445     79,461     2,433,028     2,516,958     4,385,860     4,441,113   Financial Services 55,957     52,764     99,819     98,702   Total revenues 2,488,985     2,569,722     4,485,679     4,539,815                   Homebuilding Cost of Revenues:               Home sale cost of revenues (1,848,155 )   (1,862,133 )   (3,340,946 )   (3,322,073 ) Land sale cost of revenues (26,214 )   (38,183 )   (28,265 )   (49,731 )   (1,874,369 )   (1,900,316 )   (3,369,211 )   (3,371,804 )                 Financial Services expenses (30,901 )   (32,224 )   (62,350 )   (64,436 ) Selling, general, and administrative expenses (259,440 )   (226,056 )   (512,166 )   (466,950 ) Other expense, net (3,499 )   (1,956 )   (4,473 )   (3,263 ) Income before income taxes 320,776     409,170     537,479     633,362   Income tax expense (79,735 )   (85,081 )   (129,681 )   (138,521 ) Net income $ 241,041     $ 324,089     $ 407,798     $ 494,841                   Per share:               Basic earnings $ 0.86     $ 1.12     $ 1.46     $ 1.72   Diluted earnings $ 0.86     $ 1.12     $ 1.45     $ 1.71   Cash dividends declared $ 0.11     $ 0.09     $ 0.22     $ 0.18                   Number of shares used in calculation:               Basic 276,652     285,276     277,142     285,976   Effect of dilutive securities 932     1,378     967     1,088   Diluted 277,584     286,654     278,109     287,064     PulteGroup, Inc. Condensed Consolidated Balance Sheets ($000’s omitted) (Unaudited)   June 30, 2019   December 31, 2018         ASSETS               Cash and equivalents $ 631,309     $ 1,110,088   Restricted cash 27,965     23,612   Total cash, cash equivalents, and restricted cash 659,274     1,133,700   House and land inventory 7,802,492     7,253,353   Land held for sale 38,218     36,849   Residential mortgage loans available-for-sale 343,732     461,354   Investments in unconsolidated entities 58,246     54,590   Other assets 837,279     830,359   Intangible assets 132,192     127,192   Deferred tax assets, net 224,104     275,579     $ 10,095,537     $ 10,172,976           LIABILITIES AND SHAREHOLDERS’ EQUITY               Liabilities:       Accounts payable $ 380,363     $ 352,029   Customer deposits 334,484     254,624   Accrued and other liabilities 1,308,459     1,360,483   Income tax liabilities 27,913     11,580   Financial Services debt 234,186     348,412   Notes payable 2,740,325     3,028,066     5,025,730     5,355,194   Shareholders’ equity 5,069,807     4,817,782     $ 10,095,537     $ 10,172,976     PulteGroup, Inc. Consolidated Statements of Cash Flows ($000’s omitted) (Unaudited)   Six Months Ended   June 30,   2019   2018 Cash flows from operating activities:       Net income $ 407,798     $ 494,841   Adjustments to reconcile net income to net cash from operating activities:       Deferred income tax expense 51,458     126,991   Land-related charges 6,810     5,841   Depreciation and amortization 26,497     24,161   Share-based compensation expense 17,304     16,162   Other, net 2,664     (2,803 ) Increase (decrease) in cash due to:       Inventories (399,520 )   (281,362 ) Residential mortgage loans available-for-sale 116,974     199,623   Other assets 31,593     15,822   Accounts payable, accrued and other liabilities 44,132     (51,694 ) Net cash provided by (used in) operating activities 305,710     547,582   Cash flows from investing activities:       Capital expenditures (29,575 )   (33,059 ) Investments in unconsolidated entities (4,664 )   (1,000 ) Business acquisition (163,724 )   —   Other investing activities, net 4,592     6,915   Net cash provided by (used in) investing activities (193,371 )   (27,144 ) Cash flows from financing activities:       Repayments of notes payable (297,303 )   (82,432 ) Borrowings under revolving credit facility —     1,566,000   Repayments under revolving credit facility —     (1,566,000 ) Financial Services borrowings (repayments) (114,226 )   (173,761 ) Debt issuance costs —     (8,090 ) Stock option exercises 5,208     4,467   Share repurchases (118,824 )   (112,491 ) Dividends paid (61,620 )   (52,384 ) Net cash provided by (used in) financing activities (586,765 )   (424,691 ) Net increase (decrease) in cash, cash equivalents, and restricted cash (474,426 )   95,747   Cash, cash equivalents, and restricted cash at beginning of period 1,133,700     306,168   Cash, cash equivalents, and restricted cash at end of period $ 659,274     $ 401,915           Supplemental Cash Flow Information:       Interest paid (capitalized), net $ 5,560     $ (387 ) Income taxes paid (refunded), net $ 12,618     $ 77,077     PulteGroup, Inc. Segment Data ($000’s omitted) (Unaudited)                   Three Months Ended   Six Months Ended   June 30,   June 30,   2019   2018   2019   2018 HOMEBUILDING:               Home sale revenues $ 2,403,559     $ 2,450,054     $ 4,353,415     $ 4,361,652   Land sale and other revenues 29,469     66,904     32,445     79,461   Total Homebuilding revenues 2,433,028     2,516,958     4,385,860     4,441,113                   Home sale cost of revenues (1,848,155 )   (1,862,133 )   (3,340,946 )   (3,322,073 ) Land sale cost of revenues (26,214 )   (38,183 )   (28,265 )   (49,731 ) Selling, general, and administrative expenses ("SG&A") (259,440 )   (226,056 )   (512,166 )   (466,950 ) Other expense, net (3,521 )   (2,133 )   (4,490 )   (3,548 ) Income before income taxes $ 295,698     $ 388,453     $ 499,993     $ 598,811                   FINANCIAL SERVICES:               Income before income taxes $ 25,078     $ 20,717     $ 37,486     $ 34,551                   CONSOLIDATED:               Income before income taxes $ 320,776     $ 409,170     $ 537,479     $ 633,362                                   OPERATING METRICS:               Gross margin % (a)(b) 23.1 %   24.0 %   23.3 %   23.8 % SG&A % (a) (10.8 )%   (9.2 )%   (11.8 )%   (10.7 )% Operating margin % (a) 12.3 %   14.8 %   11.5 %   13.1 %   (a) As a percentage of home sale revenues (b) Gross margin represents home sale revenues minus home sale cost of revenues   PulteGroup, Inc. Segment Data, continued ($000’s omitted) (Unaudited)                   Three Months Ended   Six Months Ended   June 30,   June 30,   2019   2018   2019   2018                 Home sale revenues $ 2,403,559     $ 2,450,054     $ 4,353,415     $ 4,361,652                   Closings - units               Northeast 349     401     568     652   Southeast 951     1,072     1,848     1,996   Florida 1,252     1,134     2,260     2,021   Midwest 822     872     1,548     1,639   Texas 1,119     1,096     1,968     1,905   West 1,096     1,166     2,032     2,154     5,589     5,741     10,224     10,367   Average selling price $ 430     $ 427     $ 426     $ 421                   Net new orders - units               Northeast 455     450     816     898   Southeast 1,214     1,093     2,287     2,352   Florida 1,460     1,347     2,806     2,791   Midwest 975     1,055     1,999     2,157   Texas 1,323     1,183     2,689     2,506   West 1,365     1,213     2,658     2,512     6,792     6,341     13,255     13,216   Net new orders - dollars $ 2,890,709     $ 2,694,271     $ 5,626,561     $ 5,587,823                   Unit backlog               Northeast         718     758   Southeast         2,049     2,072   Florida         2,435     2,448   Midwest         1,853     2,005   Texas         2,213     2,027   West         2,525     2,535             11,793     11,845   Dollars in backlog         $ 5,109,293     $ 5,205,234                   PulteGroup, Inc. Segment Data, continued ($000’s omitted) (Unaudited)                   Three Months Ended   Six Months Ended   June 30,   June 30,   2019   2018   2019   2018 MORTGAGE ORIGINATIONS:               Origination volume 3,720     3,635     6,718     6,627   Origination principal $ 1,161,906     $ 1,122,017     $ 2,076,617     $ 2,031,817   Capture rate 81.0 %   75.8 %   80.4 %   76.6 %   Supplemental Data ($000’s omitted) (Unaudited)                   Three Months Ended   Six Months Ended   June 30,   June 30,   2019   2018   2019   2018                 Interest in inventory, beginning of period $ 235,313     $ 240,013     $ 227,495     $ 226,611   Interest capitalized 41,650     43,771     84,031     87,731   Interest expensed (42,254 )   (40,157 )   (76,817 )   (70,715 ) Interest in inventory, end of period $ 234,709     $ 243,627     $ 234,709     $ 243,627     PulteGroup, Inc. Reconciliation of Non-GAAP Financial Measures (Unaudited) This report contains information about our operating results reflecting certain adjustments, including: adjustments to selling, general, and administrative expenses ("SG&A"); income tax expense; net income; and diluted earnings per share ("EPS"). These measures are considered non-GAAP financial measures under the SEC's rules and should be considered in addition to, rather than as a substitute for, the comparable GAAP financial measures as measures of our profitability. We believe that reflecting these adjustments provides investors relevant and useful information for evaluating the comparability of financial information presented and comparing our profitability to other companies in the homebuilding industry. Although other companies in the homebuilding industry report similar information, the methods used may differ. We urge investors to understand the methods used by other companies in the homebuilding industry to calculate these measures and any adjustments thereto before comparing our measures to those of such other companies. The following tables set forth a reconciliation of the non-GAAP financial measures to the GAAP financial measures that management believes to be most directly comparable ($000's omitted): Reconciliation of Adjusted Net Income and Adjusted EPS                   Three Months Ended   Results of Operations Classification   June 30,     2019   2018             Net income, as reported     $ 241,041     $ 324,089   Adjustments to income before income taxes:           Land sale gains Land sale revenues / cost of revenues   —     (26,402 ) Insurance adjustments SG&A   —     (37,890 ) Income tax effect of the above items Income tax expense   —     16,086   Net tax benefits Income tax expense   —     (17,276 ) Adjusted net income     $ 241,041     $ 258,607               EPS (diluted), as reported     $ 0.86     $ 1.12   Adjusted EPS (diluted)     $ 0.86     $ 0.89       Other Reconciliations               Three Months Ended   June 30,   2019   2018             Home sale revenues $ 2,403,559       $ 2,450,054                 Gross margin (a) $ 555,404   23.1 %   $ 587,921   24.0 %             SG&A, as reported $ 259,440   10.8 %   $ 226,056   9.2 % Adjustments:           Insurance adjustments —   — %   37,890   1.5 % Adjusted SG&A $ 259,440   10.8 %   $ 263,946   10.8 %             Operating margin, as reported (b)   12.3 %     14.8 % Adjusted operating margin (c)   12.3 %     13.2 %             (a) Gross margin represents home sale revenues minus home sale cost of revenues (b) Operating margin represents gross margin less SG&A (c) Adjusted operating margin represents gross margin less adjusted SG&A   View source version on businesswire.com: https://www.businesswire.com/news/home/20190723005125/en/ Investors: Jim Zeumer (404) 978-6434 jim.zeumer@pultegroup.com Source: PulteGroup, Inc.

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