OREANDA-NEWS. PulteGroup, Inc. (NYSE:PHM) announced today financial results for its second quarter ended June 30, 2017.  For the quarter, the Company’s reported net income was $101 million, or $0.32 per share. Adjusted net income for the period was $148 million, or $0.47 per share.  Adjustments to the Company’s reported results include a pretax charge of $121 million associated with the Company’s previously announced decision to dispose of select non-core and underutilized land assets, a net pretax benefit of $8 million relating to warranty and construction defect reserve adjustments, and $24 million of net tax benefits recorded during the period.

Reported net income for the prior year second quarter was $118 million, or $0.34 per share.   Adjusted net income for the prior year quarter was $127 million, or $0.37 per share, after excluding the impact of land and corporate office relocation charges in the period. 

“U.S. housing demand continues to benefit from positive market dynamics including an improving economy and job market, high consumer confidence, low interest rates and a generally limited supply of homes across the country,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup.  “Given these strong market supports, we believe housing demand can continue to move higher over the coming quarters.”

“Within this market environment, PulteGroup is successfully executing against its business strategies as we focus on intelligently growing our business while delivering high returns,” added Mr. Marshall.  “Consistent with this focus, our second quarter results show orders up 12%, backlog value up 19% and adjusted earnings per share up 27%, while ROE improved 140 basis points to 12.8%.”  

Second Quarter Results

Home sale revenues for the second quarter increased 12% over the prior year to $2.0 billion.  Higher revenues for the period were driven by a 6% increase in deliveries to 5,044 homes, combined with a 6% increase in average sales price to $390,000.

Reported gross margin for the second quarter was 21.1%, including the impact of land-related and warranty charges taken in the period.  Exclusive of these charges, the Company’s adjusted gross margin for the quarter was 23.4%.   Reported SG&A expense for the second quarter was $216 million, or 11.0% of home sale revenues, which includes a $20 million benefit relating to an insurance reserve adjustment taken in the period.  Adjusted SG&A expense for the quarter was $236 million, or 12.0% of home sale revenues.  Reported SG&A expense for the prior year was $256 million, or 14.6% of home sale revenues. 

Net new orders for the second quarter increased 12% over the prior year to 6,395 homes.  The dollar value of net new orders gained 23% to $2.6 billion.  For the quarter, the Company operated out of 803 communities.

PulteGroup’s unit backlog increased 10% over the prior year to 10,674 homes.  The value of homes in backlog increased 19% to $4.5 billion.  The average sales price of homes in backlog is $418,000, which is up 8% over the average sales price in backlog in the second quarter of last year and up 7% from the average sales price of homes delivered in the second quarter of 2017.

Pretax income for the Company's financial services operations increased 11% for the quarter to $19 million, as the operations benefitted from higher homebuilder closing volumes and an increase in the average loan size.  Mortgage capture rate for the quarter was 79%, compared with 81% in the prior year.

For the quarter, the Company reported $22 million of income tax expense, representing an effective tax rate of 17.8%.  The Company’s tax rate for the quarter included the net benefit of $24 million resulting from the favorable resolution of certain tax matters.  Excluding this benefit, the Company’s effective tax rate would have been approximately 37%.

During the quarter, PulteGroup repurchased 12.8 million common shares for $300 million, or an average price of $23.42 per share.   

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 the impairment charge with respect to certain land parcels 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.

About PulteGroup

PulteGroup, Inc. (NYSE:PHM), based in Atlanta, Georgia, is one of America's largest homebuilding companies with operations in approximately 50 markets throughout the country. Through its brand portfolio that includes Centex, Pulte Homes, Del Webb, DiVosta Homes 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.

 
PulteGroup, Inc.
Consolidated Results of Operations
($000's omitted, except per share data)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
Revenues:              
Homebuilding              
Home sale revenues $ 1,965,641     $ 1,751,882     $ 3,551,063     $ 3,146,125  
Land sale revenues 7,930     4,950     9,570     7,437  
  1,973,571     1,756,832     3,560,633     3,153,562  
Financial Services 47,275     43,082     89,042     78,930  
Total revenues 2,020,846     1,799,914     3,649,675     3,232,492  
               
Homebuilding Cost of Revenues:              
Home sale cost of revenues (1,549,937 )   (1,310,569 )   (2,767,615 )   (2,348,597 )
Land sale cost of revenues (87,599 )   (4,403 )   (90,827 )   (6,430 )
  (1,637,536 )   (1,314,972 )   (2,858,442 )   (2,355,027 )
               
Financial Services expenses (28,478 )   (26,180 )   (56,846 )   (52,298 )
Selling, general, and administrative expenses (216,211 )   (256,273 )   (452,479 )   (498,589 )
Other expense, net (16,074 )   (12,909 )   (20,095 )   (18,785 )
Income before income taxes 122,547     189,580     261,813     307,793  
Income tax expense (21,798 )   (71,820 )   (69,545 )   (106,733 )
Net income $ 100,749     $ 117,760     $ 192,268     $ 201,060  
               
Per share:              
Basic earnings $ 0.32     $ 0.34     $ 0.60     $ 0.58  
Diluted earnings $ 0.32     $ 0.34     $ 0.60     $ 0.57  
Cash dividends declared $ 0.09     $ 0.09     $ 0.18     $ 0.18  
               
Number of shares used in calculation:              
Basic 312,315     345,240     315,021     346,528  
Effect of dilutive securities 1,565     2,759     1,946     2,710  
Diluted 313,880     347,999     316,967     349,238  
                       
PulteGroup, Inc.
Condensed Consolidated Balance Sheets
($000's omitted)
(Unaudited)
 
  June 30,
 2017		   December 31,
 2016
       
ASSETS      
       
Cash and equivalents $ 208,203     $ 698,882  
Restricted cash 31,652     24,366  
Total cash, cash equivalents, and restricted cash 239,855     723,248  
House and land inventory 7,090,164     6,770,655  
Land held for sale 104,652     31,728  
Residential mortgage loans available-for-sale 364,939     539,496  
Investments in unconsolidated entities 59,617     51,447  
Other assets 818,972     857,426  
Intangible assets 147,892     154,792  
Deferred tax assets, net 986,787     1,049,408  
  $ 9,812,878     $ 10,178,200  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
       
Liabilities:      
Accounts payable $ 407,691     $ 405,455  
Customer deposits 290,890     187,891  
Accrued and other liabilities 1,406,598     1,483,854  
Financial Services debt 153,703     331,621  
Senior notes 3,109,994     3,110,016  
  5,368,876     5,518,837  
Shareholders' equity 4,444,002     4,659,363  
  $ 9,812,878     $ 10,178,200  
               
PulteGroup, Inc.
Consolidated Statements of Cash Flows
($000's omitted)
(Unaudited)
 
  Six Months Ended
  June 30,
  2017   2016
Cash flows from operating activities:      
Net income $ 192,268     $ 201,060  
Adjustments to reconcile net income to net cash from operating activities:      
Deferred income tax expense 80,841     117,783  
Land-related charges 129,108     10,522  
Depreciation and amortization 26,023     26,705  
Share-based compensation expense 20,871     16,906  
Other, net (1,536 )   (732 )
Increase (decrease) in cash due to:      
Inventories (486,393 )   (810,417 )
Residential mortgage loans available-for-sale 172,943     78,460  
Other assets 15,309     (15,506 )
Accounts payable, accrued and other liabilities 26,892     55,113  
Net cash provided by (used in) operating activities 176,326     (320,106 )
Cash flows from investing activities:      
Capital expenditures (16,892 )   (21,044 )
Investment in unconsolidated subsidiaries (17,832 )   (13,769 )
Cash used for business acquisition —     (430,025 )
Other investing activities, net 3,143     5,473  
Net cash used in investing activities (31,581 )   (459,365 )
Cash flows from financing activities:      
Proceeds from debt issuance —     986,084  
Repayments of debt (2,153 )   (484,974 )
Borrowings under revolving credit facility 110,000     358,000  
Repayments under revolving credit facility (110,000 )   (358,000 )
Financial Services borrowings (repayments) (177,918 )   (78,320 )
Stock option exercises 15,966     742  
Share repurchases (405,819 )   (100,806 )
Dividends paid (58,214 )   (63,019 )
Net cash provided by (used in) financing activities (628,138 )   259,707  
Net increase (decrease) (483,393 )   (519,764 )
Cash, cash equivalents, and restricted cash at beginning of period 723,248     775,435  
Cash, cash equivalents, and restricted cash at end of period $ 239,855     $ 255,671  
       
Supplemental Cash Flow Information:      
Interest paid (capitalized), net $ (2,359 )   $ (14,671 )
Income taxes paid (refunded), net $ (10,980 )   $ (5,457 )
               
PulteGroup, Inc.
Segment Data
($000's omitted)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
HOMEBUILDING:              
Home sale revenues $ 1,965,641     $ 1,751,882     $ 3,551,063     $ 3,146,125  
Land sale revenues 7,930     4,950     9,570     7,437  
Total Homebuilding revenues 1,973,571     1,756,832     3,560,633     3,153,562  
               
Home sale cost of revenues (1,549,937 )   (1,310,569 )   (2,767,615 )   (2,348,597 )
Land sale cost of revenues (87,599 )   (4,403 )   (90,827 )   (6,430 )
Selling, general, and administrative expenses (216,211 )   (256,273 )   (452,479 )   (498,589 )
Other expense, net (16,225 )   (13,041 )   (20,350 )   (18,967 )
Income before income taxes $ 103,599     $ 172,546     $ 229,362     $ 280,979  
               
FINANCIAL SERVICES:              
Income before income taxes $ 18,948     $ 17,034     $ 32,451     $ 26,814  
               
CONSOLIDATED:              
Income before income taxes $ 122,547     $ 189,580     $ 261,813     $ 307,793  
                               
PulteGroup, Inc.
Segment Data, continued
($000's omitted)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
               
Home sale revenues $ 1,965,641     $ 1,751,882     $ 3,551,063     $ 3,146,125  
               
Closings - units              
Northeast 296     310     528     572  
Southeast 949     1,025     1,785     1,851  
Florida 910     767     1,742     1,512  
Midwest 907     786     1,575     1,338  
Texas 1,042     923     1,882     1,698  
West 940     961     1,757     1,746  
  5,044     4,772     9,269     8,717  
Average selling price $ 390     $ 367     $ 383     $ 361  
               
Net new orders - units              
Northeast 376     352     787     730  
Southeast 1,193     1,016     2,270     2,068  
Florida 1,090     1,011     2,130     1,934  
Midwest 1,089     1,059     2,251     2,053  
Texas 1,189     1,036     2,400     2,157  
West 1,458     1,223     2,683     2,407  
  6,395     5,697     12,521     11,349  
Net new orders - dollars $ 2,625,091     $ 2,142,024     $ 5,071,230     $ 4,255,995  
               
Unit backlog              
Northeast         646     602  
Southeast         1,856     1,679  
Florida         1,806     1,696  
Midwest         1,983     1,804  
Texas         1,930     1,804  
West         2,453     2,094  
          10,674     9,679  
Dollars in backlog         $ 4,461,680     $ 3,749,299  
               
PulteGroup, Inc.
Segment Data, continued
($000's omitted)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
MORTGAGE ORIGINATIONS:              
Origination volume 3,330     3,158     6,203     5,706  
Origination principal $ 969,691     $ 868,671     $ 1,776,043     $ 1,535,317  
Capture rate 78.9 %   80.6 %   79.5 %   80.8 %
                       
Supplemental Data
($000's omitted)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2017   2016   2017   2016
               
Interest in inventory, beginning of period $ 203,828     $ 158,653     $ 186,097     $ 149,498  
Interest capitalized 44,949     38,231     89,872     73,515  
Interest expensed (35,927 )   (29,396 )   (63,119 )   (55,525 )
Interest in inventory, end of period $ 212,850     $ 167,488     $ 212,850     $ 167,488  
                               

PulteGroup, Inc.
Reconciliation of Non-GAAP Financial Measures

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):

  Three Months Ended
  June 30, 2017
           
      Adjustments    
          Warranty /   Income    
  As Reported   Impairments   Insurance   Taxes   Adjusted
Revenues:                  
Homebuilding                  
Home sale revenues $ 1,965,641     $ —     $ —     $ —     $ 1,965,641  
Land sale revenues 7,930                 7,930  
  1,973,571                 1,973,571  
Financial Services 47,275                 47,275  
Total revenues 2,020,846                 2,020,846  
                   
Homebuilding Cost of Revenues:                  
Home sale cost of revenues (1,549,937 )   31,487     12,106         (1,506,344 )
Land sale cost of revenues (87,599 )   81,006             (6,593 )
  (1,637,536 )   112,493     12,106         (1,512,937 )
                   
Financial Services expenses (28,478 )               (28,478 )
Selling, general, and administrative expenses (SG&A) (216,211 )       (19,813 )       (236,024 )
Other expense, net (16,074 )   8,017             (8,057 )
Income before income taxes 122,547     120,510     (7,707 )   —     235,350  
Income tax expense (21,798 )   (44,589 )   2,852     (23,808 )   (87,343 )
Net income $ 100,749     $ 75,921     $ (4,855 )   $ (23,808 )   $ 148,007  
                   
Earnings per share (diluted) $ 0.32                 $ 0.47  
                   
Home sale gross margin 21.1 %               23.4 %
SG&A as a percentage of sales 11.0 %               12.0 %
Operating margin 10.1 %               11.4 %
                           
Effective income tax rate 17.8 %               37.1 %
  Three Months Ended
  June 30, 2016
           
  As Reported   Adjustments*   Adjusted
Revenues:          
Homebuilding          
Home sale revenues $ 1,751,882     $ —     $ 1,751,882  
Land sale revenues 4,950         4,950  
  1,756,832         1,756,832  
Financial Services 43,082         43,082  
Total revenues 1,799,914         1,799,914  
           
Homebuilding Cost of Revenues:          
Home sale cost of revenues (1,310,569 )       (1,310,569 )
Land sale cost of revenues (4,403 )       (4,403 )
  (1,314,972 )   —     (1,314,972 )
           
Financial Services expenses (26,180 )       (26,180 )
Selling, general, and administrative expenses (SG&A) (256,273 )       (256,273 )
Other expense, net (12,909 )   14,724     1,815  
Income before income taxes 189,580     14,724     204,304  
Income tax expense (71,820 )   (5,595 )   (77,415 )
Net income $ 117,760     $ 9,129     $ 126,889  
           
Earnings per share (diluted) $ 0.34         $ 0.37  
           
Home sale gross margin 25.2 %       25.2 %
SG&A as a percentage of sales 14.6 %       14.6 %
Operating margin 10.6 %       10.6 %
                       
Effective income tax rate 37.9 %       37.9 %

* Includes charges associated with the termination of certain pending land transactions and recognition of final costs associated with our corporate office relocation.