PulteGroup Reports Fourth Quarter 2019 Financial Results
PulteGroup, Inc. (NYSE: PHM) announced today financial results for its fourth quarter ended December 31, 2019. For the quarter, the Company reported net income of $336 million, or $1.22 per share. Adjusted net income for the period was $312 million, or $1.14 per share, after excluding $31 million of pre-tax benefit from an insurance reserve adjustment.
Reported net income for the fourth quarter of 2018 was $238 million, or $0.84 per share. Adjusted net income for the fourth quarter of 2018 was $314 million, or $1.11 per share, after excluding $85 million of pre-tax land charges and a $16 million pre-tax charge for a Financial Services reserve adjustment.
“As demonstrated by our 33% increase in orders, the recovery in housing demand that began earlier this year gained momentum through the fourth quarter as we realized strong sales across all buyer groups,” said Company President and CEO Ryan Marshall. “The quarter completes an outstanding year during which we continued to invest in growing our business, generated $1.1 billion in operating cash flow, returned $397 million to shareholders, paid down $310 million of homebuilder debt, and realized a 20.0% return on equity.”
“Strong demand for new homes is benefitting from favorable market dynamics including improved affordability in part due to low mortgage rates, high employment and consumer confidence, and a generally balanced inventory of new homes,” added Marshall. “The sustained strength in housing demand allowed us to deliver strong fourth quarter and full-year results, and has PulteGroup well positioned to increase delivery volumes, revenues, homebuilding gross margins and earnings in 2020.”
Fourth Quarter Results
Home sale revenues for the fourth quarter increased 1% over the fourth quarter of 2018 to $2.9 billion. Higher revenues for the period reflect a 2% increase in closings to 6,822 homes, partially offset by a less than 1% decrease in average sales price to $429,000.
Home sale gross margin for the fourth quarter was 22.8%, compared with prior year reported and adjusted gross margins of 21.5% and 23.8%, respectively.
Reported fourth quarter SG&A expense of $262 million, or 8.9% of home sale revenues, included a $31 million pre-tax benefit from an insurance reserve adjustment recorded in the period. Exclusive of this benefit, adjusted SG&A expense for the quarter was $293 million, or 10.0% of home sale revenues. SG&A expense for the fourth quarter of 2018 was $292 million, or 10.1% of home sale revenues.
Net new orders for the quarter increased 33% over the fourth quarter of 2018 to 5,691 homes as results benefitted from both increased community count and higher absorption pace. The value of net new orders increased 35% to $2.5 billion, up from $1.8 billion in the fourth quarter of 2018. Average community count for the fourth quarter was 865 communities, compared with 825 communities in the fourth quarter of 2018.
Unit backlog is up 20% over last year to 10,507 homes, while the backlog dollar value increased 18% to $4.5 billion. The decrease in the average price of homes in backlog reflects the Company’s efforts to modestly expand its first-time buyer business which typically carries a lower sales price.
Pre-tax income for the Company’s Financial Services operations was $34 million compared with $5 million in the fourth quarter of 2018. Results for the fourth quarter of 2018 included a $16 million pre-tax charge for a reserve adjustment recorded in the period. The increase in pre-tax income for the period also reflects a strong margin environment, higher loan volumes resulting from growth in the Company’s homebuilding operations and a higher mortgage capture rate. Capture rate for the fourth quarter increased to 84% from 77% last year.
During the quarter, the Company repurchased 0.8 million of its common shares for $30 million, or an average price of $39.16 per share. For the year, the Company repurchased 8.4 million common shares, or 3% of its outstanding shares, for $274 million, or an average price of $32.52 per share.
At year end, the Company had $1.2 billion of cash and a debt-to-total capitalization of 33.6%, which is down from 38.6% at the end of 2018.
Company Acquires Off-site Framing-Shell Manufacturer
In a separate press release, PulteGroup also announced today that it has acquired the assets of Innovative Construction Group (ICG), a leading off-site solutions provider focused on single family and multifamily wood framed construction. Based in Jacksonville, Florida, ICG’s comprehensive framing solutions include design services, manufactured wall panels, roof trusses and floor systems, and onsite installation to provide a full frame shell construction process. ICG will remain a stand-alone operation and continue serving its existing customer base and builder clients.
“In response to ongoing labor constraints which are impacting construction trades throughout the country, we have made the strategic decision to acquire off-site manufacturing capabilities that we believe can help us drive greater production efficiencies,” said Marshall. “We view this acquisition as a logical next step in the common plan management platform we have been advancing for years and see the potential to open comparable production plants in future years.”
A conference call discussing PulteGroup's fourth quarter 2019 results is scheduled for Tuesday, January 28, 2020, at 8:30 a.m. Eastern Time. Interested investors can access the live webcast via PulteGroup's corporate website at www.pultegroupinc.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 Results of Operations
($000's omitted, except per share data)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
Revenues:
Homebuilding
Home sale revenues
$
2,925,288
$
2,884,557
$
9,915,705
$
9,818,445
Land sale and other revenues
21,828
59,534
62,821
164,504
2,947,116
2,944,091
9,978,526
9,982,949
Financial Services
69,797
55,059
234,431
205,382
Total revenues
3,016,913
2,999,150
10,212,957
10,188,331
Homebuilding Cost of Revenues:
Home sale cost of revenues
(2,259,131
)
(2,264,704
)
(7,628,700
)
(7,540,937
)
Land sale cost of revenues
(20,484
)
(54,769
)
(56,098
)
(126,560
)
(2,279,615
)
(2,319,473
)
(7,684,798
)
(7,667,497
)
Financial Services expenses
(35,906
)
(50,772
)
(130,770
)
(147,422
)
Selling, general, and administrative expenses
(261,545
)
(292,318
)
(1,044,337
)
(1,012,023
)
Other expense, net
(3,896
)
(7,096
)
(13,476
)
(13,849
)
Income before income taxes
435,951
329,491
1,339,576
1,347,540
Income tax expense
(100,153
)
(91,842
)
(322,876
)
(325,517
)
Net income
$
335,798
$
237,649
$
1,016,700
$
1,022,023
Net income per share:
Basic
$
1.23
$
0.84
$
3.67
$
3.56
Diluted
$
1.22
$
0.84
$
3.66
$
3.55
Cash dividends declared
$
0.12
$
0.11
$
0.45
$
0.38
Number of shares used in calculation:
Basic
270,843
278,964
274,495
283,578
Effect of dilutive securities
632
1,248
802
1,287
Diluted
271,475
280,212
275,297
284,865
PulteGroup, Inc.
Condensed Consolidated Balance Sheets
($000's omitted)
(Unaudited)
December 31,
2019
December 31,
2018
ASSETS
Cash and equivalents
$
1,217,913
$
1,110,088
Restricted cash
33,543
23,612
Total cash, cash equivalents, and restricted cash
1,251,456
1,133,700
House and land inventory
7,680,614
7,253,353
Land held for sale
24,009
36,849
Residential mortgage loans available-for-sale
508,967
461,354
Investments in unconsolidated entities
59,766
54,590
Other assets
895,686
830,359
Intangible assets
124,992
127,192
Deferred tax assets, net
170,107
275,579
$
10,715,597
$
10,172,976
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable
$
435,916
$
352,029
Customer deposits
294,427
254,624
Accrued and other liabilities
1,399,368
1,360,483
Income tax liabilities
36,093
11,580
Financial Services debt
326,573
348,412
Notes payable
2,765,040
3,028,066
Total liabilities
5,257,417
5,355,194
Shareholders' equity
5,458,180
4,817,782
$
10,715,597
$
10,172,976
PulteGroup, Inc.
Consolidated Statements of Cash Flows
($000's omitted)
(Unaudited)
Year Ended
December 31,
2019
2018
Cash flows from operating activities:
Net income
$
1,016,700
$
1,022,023
Adjustments to reconcile net income to net cash from operating activities:
Deferred income tax expense
105,438
362,777
Land-related charges
27,101
99,446
Depreciation and amortization
53,999
49,429
Share-based compensation expense
28,368
28,290
Loss on debt retirements
4,927
76
Other, net
1,155
(3,688
)
Increase (decrease) in cash due to:
Inventories
(237,741
)
(50,362
)
Residential mortgage loans available-for-sale
(48,261
)
107,330
Other assets
(15,125
)
(64,174
)
Accounts payable, accrued and other liabilities
140,984
(101,400
)
Net cash provided by (used in) operating activities
1,077,545
1,449,747
Cash flows from investing activities:
Capital expenditures
(58,119
)
(59,039
)
Investments in unconsolidated entities
(9,515
)
(1,000
)
Business acquisition
(163,724
)
—
Other investing activities, net
5,129
18,097
Net cash provided by (used in) investing activities
(226,229
)
(41,942
)
Cash flows from financing activities:
Debt issuance costs
—
(8,164
)
Repayments of notes payable
(309,985
)
(82,775
)
Borrowings under revolving credit facility
—
1,566,000
Repayments under revolving credit facility
—
(1,566,000
)
Financial Services borrowings (repayments), net
(21,841
)
(89,393
)
Stock option exercises
6,399
6,555
Share repurchases
(274,333
)
(294,566
)
Cash paid for shares withheld for taxes
(11,450
)
(7,910
)
Dividends paid
(122,350
)
(104,020
)
Net cash provided by (used in) financing activities
(733,560
)
(580,273
)
Net increase (decrease)
117,756
827,532
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
$
1,251,456
$
1,133,700
Supplemental Cash Flow Information:
Interest paid (capitalized), net
$
5,605
$
557
Income taxes paid, net
$
137,119
$
89,204
PulteGroup, Inc.
Segment Data
($000's omitted)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
HOMEBUILDING:
Home sale revenues
$
2,925,288
$
2,884,557
$
9,915,705
$
9,818,445
Land sale and other revenues
21,828
59,534
62,821
164,504
Total Homebuilding revenues
2,947,116
2,944,091
9,978,526
9,982,949
Home sale cost of revenues
(2,259,131
)
(2,264,704
)
(7,628,700
)
(7,540,937
)
Land sale cost of revenues
(20,484
)
(54,769
)
(56,098
)
(126,560
)
Selling, general, and administrative expenses
(261,545
)
(292,318
)
(1,044,337
)
(1,012,023
)
Other expense, net
(3,549
)
(7,362
)
(13,130
)
(14,625
)
Income before income taxes
$
402,407
$
324,938
$
1,236,261
$
1,288,804
FINANCIAL SERVICES:
Income before income taxes
$
33,544
$
4,553
$
103,315
$
58,736
CONSOLIDATED:
Income before income taxes
$
435,951
$
329,491
$
1,339,576
$
1,347,540
PulteGroup, Inc.
Segment Data, continued
($000's omitted)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
Home sale revenues
$
2,925,288
$
2,884,557
$
9,915,705
$
9,818,445
Closings - units
Northeast
487
556
1,443
1,558
Southeast
1,067
1,123
3,982
4,220
Florida
1,459
1,509
5,045
4,771
Midwest
1,091
1,063
3,583
3,716
Texas
1,366
1,193
4,528
4,212
West
1,352
1,265
4,651
4,630
6,822
6,709
23,232
23,107
Average selling price
$
429
$
430
$
427
$
425
Net new orders - units
Northeast
322
265
1,562
1,516
Southeast
956
814
4,237
4,114
Florida
1,316
1,018
5,462
4,982
Midwest
827
651
3,721
3,631
Texas
1,094
767
4,886
4,278
West
1,176
752
5,109
4,312
5,691
4,267
24,977
22,833
Net new orders - dollars
$
2,450,095
$
1,809,352
$
10,615,363
$
9,675,529
December 31,
2019
2018
Unit backlog
Northeast
589
470
Southeast
1,865
1,610
Florida
2,306
1,889
Midwest
1,540
1,402
Texas
1,850
1,492
West
2,357
1,859
10,507
8,722
Dollars in backlog
$
4,535,805
$
3,836,147
PulteGroup, Inc.
Segment Data, continued
($000's omitted)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
MORTGAGE ORIGINATIONS:
Origination volume
4,802
4,145
15,821
14,464
Origination principal
$
1,534,416
$
1,286,154
$
4,976,973
$
4,456,360
Capture rate
84.1
%
76.8
%
82.4
%
76.2
%
Supplemental Data
($000's omitted)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
Interest in inventory, beginning of period
$
228,562
$
242,787
$
227,495
$
226,611
Interest capitalized
40,191
42,335
164,114
172,809
Interest expensed
(58,370
)
(57,627
)
(181,226
)
(171,925
)
Interest in inventory, end of period
$
210,383
$
227,495
$
210,383
$
227,495
PulteGroup, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
This report contains information about our operating results reflecting certain adjustments, including adjustments to cost of revenues, selling general, and administrative expenses, income before income taxes, income tax expense, net income, diluted earnings per share, and operating margin. 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
December 31,
Results of Operations Classification
2019
2018
Net income, as reported
$
335,798
$
237,649
Adjustments to income before income taxes:
Land impairments
Home sale cost of revenues
*
66,911
Net realizable value adjustments - land held for sale
Land sale cost of revenues
*
8,968
Write-offs of pre-acquisition costs
Other income (expense)
*
9,595
Insurance reserve adjustments
SG&A
(31,099
)
*
Financial Services reserve adjustments
Financial Services expense
*
16,224
Income tax effect of the above items
Income tax expense
7,672
(25,719
)
Adjusted net income
$
312,371
$
313,628
EPS (diluted), as reported
$
1.22
$
0.84
Adjusted EPS (diluted)
$
1.14
$
1.11
*Item not meaningful for the period presented
Other Reconciliations
Three Months Ended
December 31,
2019
2018
Home sale revenues
$
2,925,288
$
2,884,557
Gross margin, as reported
$
666,157
22.8
%
$
619,853
21.5
%
Land impairments
*
*
66,911
2.3
%
Adjusted gross margin
$
666,157
22.8
%
$
686,764
23.8
%
SG&A, as reported
$
261,545
8.9
%
$
292,318
10.1
%
Insurance reserve adjustments
31,099
1.1
%
*
*
Adjusted SG&A
$
292,644
10.0
%
$
292,318
10.1
%
Operating margin, as reported**
13.8
%
11.4
%
Adjusted operating margin***
12.8
%
13.7
%
*Item not meaningful for the period presented
**Operating margin represents gross margin less SG&A divided by home sale revenues
***Adjusted operating margin represents adjusted gross margin less adjusted SG&A divided by home sale revenues
View source version on businesswire.com: https://www.businesswire.com/news/home/20200128005146/en/