PULTEGROUP INC/MI/ - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 26, 2018

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8-K - 8-K EARNINGS RELEASE 2Q 2018 - PULTEGROUP INC/MI/a8-k7x26x18earningsrelease.htm


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FOR IMMEDIATE RELEASE
Company Contact
 
Investors: Jim Zeumer
 
(404) 978-6434
 
          Email: jim.zeumer@pultegroup.com
 
 


PULTEGROUP REPORTS SECOND QUARTER 2018 FINANCIAL RESULTS

•
Reported Net Income Per Share of $1.12 Reflects Favorable Impact of Insurance Adjustments, Land Sale Gains and Lower Tax Rate
•
Revenue Growth and Operational Gains Drive 89% Year-Over-Year Increase in Adjusted Net Income Per Share to $0.89
•
Home Sale Revenues Increased 25% to $2.5 Billion
•
Reported Gross Margin Increased to 24.0%
•
Reported Operating Margin of 14.8%; Adjusted Operating Margin Increased 180 Basis Points Over Prior Year to 13.2%
•
Value of Net New Orders Increased 3% to $2.7 Billion; Net New Orders Decreased 1% to 6,341 Homes
•
Backlog Value Increased 17% to $5.2 Billion; Backlog Increased 11% to 11,845 Homes

ATLANTA - July 26, 2018 - PulteGroup, Inc. (NYSE: PHM) announced today financial results for its second quarter ended June 30, 2018. For the quarter, the Company’s reported net income was $324 million, or $1.12 per share. Adjusted net income for the period was $259 million, or $0.89 per share, after excluding $38 million of pretax benefit associated with insurance reserve adjustments, $26 million of pretax land-sale gains, and $17 million of net tax benefits recorded during the period.
Reported net income for the prior year second quarter was $101 million, or $0.32 per share. Adjusted net income for the prior year period was $148 million, or $0.47 per share, after excluding $121 million of pretax charges associated with the decision to dispose of select non-core land assets, $8 million of net pretax benefit relating to warranty and insurance reserve adjustments, and $24 million of net tax benefits recorded during the period.
“Working against our defined strategic plan, our operating teams continue to do an outstanding job as revenues increased 25%, adjusted gross margin increased 60 basis points, and adjusted EPS surged 89%,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup. “Given the operating and financial gains we have realized through the first half of 2018, and with almost 12,000 homes in backlog, we are well positioned to deliver outstanding full-year results.”

1


“We continue to see U.S. housing demand being supported by a number of positive market dynamics including an expanding economy, ongoing growth in jobs and wages, historically low unemployment, and sustained high levels of consumer confidence,” added Mr. Marshall. “With our strong land pipeline and ability to serve all primary buyer groups, we believe PulteGroup is well positioned to grow its business within this market environment, while continuing to generate high financial returns.”
Second Quarter Results
Home sale revenues for the second quarter increased 25% over the prior year to $2.5 billion. The increase in revenues for the period was driven by a 14% increase in deliveries to 5,741 homes, combined with a 10% increase in average sales price to $427,000.
Reported gross margin for the second quarter was 24.0%, which is 60 basis points higher than second quarter 2017 adjusted gross margin of 23.4%. Prior year adjusted gross margin excludes the impact of the land-related and warranty charges recorded in the period.
Reported SG&A expense for the second quarter of $226 million, or 9.2% of home sale revenues, includes the $38 million benefit relating to an insurance reserve adjustment recorded in the period. Exclusive of this benefit, adjusted SG&A expense for the quarter was $264 million, or 10.8% of home sale revenues. Adjusted SG&A expense for the prior year was $236 million, or 12.0% of home sale revenues, which excludes a $20 million benefit relating to an insurance reserve adjustment recorded in the period.
In the quarter, the Company recorded land sales gains totaling $27.3 million relating primarily to the sale of two land parcels that were completed in the period.
Net new orders for the second quarter declined less than 1.0% from the prior year to 6,341 homes. The dollar value of net new orders increased 3% to $2.7 billion. For the quarter, the Company operated out of 847 communities.
PulteGroup’s unit backlog increased 11% over the prior year to 11,845 homes. The value of homes in backlog increased 17% to $5.2 billion. The average sales price of homes in backlog is $439,000, which is 5% higher than last year’s average sales price in backlog.
Second quarter pretax income for the Company's financial services operations increased 9% over the prior year to $21 million. Financial services benefitted from higher homebuilder closing volumes and an increase in the average loan size. Mortgage capture rate for the quarter was 76%, compared with 79% in the prior year.
For the quarter, the Company reported $85 million of income tax expense, representing an effective tax rate of 20.8%. The Company’s tax rate for the quarter included the net benefit of $17 million of tax adjustments recorded in the period. Excluding this benefit, the Company’s effective tax rate would have been approximately 25%.
During the quarter, PulteGroup repurchased 1.7 million common shares for $53 million, or an average price of $30.07 per share.
A conference call discussing PulteGroup's second quarter 2018 results is scheduled for Thursday, July 26, 2018, at 8:00 a.m. Eastern Time. Interested investors can access the live webcast via PulteGroup's corporate website at www.pultegroupinc.com.


2


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, including, but not limited to the Tax Cuts and Jobs Act 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 PulteGroup's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and other public filings with the Securities and Exchange Commission (the “SEC”) for a further discussion of these and other risks and uncertainties applicable to our businesses. We undertake no duty to update any forward-looking statement, whether as a result of new information, future events or changes in our expectations.

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.

For more information about PulteGroup, Inc. and PulteGroup brands, go to www.pultegroupinc.com;
www.pulte.com; www.centex.com; www.delwebb.com; www.divosta.com and www.jwhomes.com.


# # #




3



PulteGroup, Inc.
Consolidated Results of Operations
($000's omitted, except per share data)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Homebuilding
 
 
 
 
 
 
 
Home sale revenues
$
2,450,054

 
$
1,965,641

 
$
4,361,652

 
$
3,551,063

Land sale and other revenues
66,904

 
8,944

 
79,461

 
11,632

 
2,516,958

 
1,974,585

 
4,441,113

 
3,562,695

Financial Services
52,764

 
47,275

 
98,702

 
89,042

Total revenues
2,569,722

 
2,021,860

 
4,539,815

 
3,651,737

 
 
 
 
 
 
 
 
Homebuilding Cost of Revenues:
 
 
 
 
 
 
 
Home sale cost of revenues
(1,862,133
)
 
(1,549,937
)
 
(3,322,073
)
 
(2,767,615
)
Land sale cost of revenues
(38,183
)
 
(87,599
)
 
(49,731
)
 
(90,827
)
 
(1,900,316
)
 
(1,637,536
)
 
(3,371,804
)
 
(2,858,442
)
 
 
 
 
 
 
 
 
Financial Services expenses
(32,224
)
 
(28,478
)
 
(64,436
)
 
(56,846
)
Selling, general, and administrative expenses
(226,056
)
 
(216,211
)
 
(466,950
)
 
(452,479
)
Other expense, net
(1,956
)
 
(17,088
)
 
(3,263
)
 
(22,157
)
Income before income taxes
409,170

 
122,547

 
633,362

 
261,813

Income tax expense
(85,081
)
 
(21,798
)
 
(138,521
)
 
(69,545
)
Net income
$
324,089

 
$
100,749

 
$
494,841

 
$
192,268

 
 
 
 
 
 
 
 
Per share:
 
 
 
 
 
 
 
Basic earnings
$
1.12

 
$
0.32

 
$
1.72

 
$
0.60

Diluted earnings
$
1.12

 
$
0.32

 
$
1.71

 
$
0.60

Cash dividends declared
$
0.09

 
$
0.09

 
$
0.18

 
$
0.18

 
 
 
 
 
 
 
 
Number of shares used in calculation:
 
 
 
 
 
 
 
Basic
285,276

 
312,315

 
285,976

 
315,021

Effect of dilutive securities
1,378

 
1,565

 
1,088

 
1,946

Diluted
286,654

 
313,880

 
287,064

 
316,967





4



PulteGroup, Inc.
Condensed Consolidated Balance Sheets
($000's omitted)
(Unaudited)
 
June 30,
2018
 
December 31,
2017
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Cash and equivalents
$
367,091

 
$
272,683

Restricted cash
34,824

 
33,485

Total cash, cash equivalents, and restricted cash
401,915

 
306,168

House and land inventory
7,499,665

 
7,147,130

Land held for sale
77,941

 
68,384

Residential mortgage loans available-for-sale
369,634

 
570,600

Investments in unconsolidated entities
61,718

 
62,957

Other assets
759,230

 
745,123

Intangible assets
134,092

 
140,992

Deferred tax assets, net
511,381

 
645,295

 
$
9,815,576

 
$
9,686,649

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Liabilities:
 
 
 
Accounts payable
$
399,330

 
$
393,815

Customer deposits
354,968

 
250,779

Accrued and other liabilities
1,242,349

 
1,356,333

Income tax liabilities
22,484

 
86,925

Financial Services debt
264,043

 
437,804

Notes payable
3,005,690

 
3,006,967

 
5,288,864

 
5,532,623

Shareholders' equity
4,526,712

 
4,154,026

 
$
9,815,576

 
$
9,686,649



5


PulteGroup, Inc.
Consolidated Statements of Cash Flows
($000's omitted)
(Unaudited)
 
Six Months Ended
 
June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
494,841

 
$
192,268

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Deferred income tax expense
126,991

 
80,841

Land-related charges
5,841

 
129,108

Depreciation and amortization
24,161

 
26,023

Share-based compensation expense
16,162

 
20,871

Other, net
(2,803
)
 
(1,536
)
Increase (decrease) in cash due to:
 
 
 
Inventories
(281,362
)
 
(486,393
)
Residential mortgage loans available-for-sale
199,623

 
172,943

Other assets
15,822

 
15,309

Accounts payable, accrued and other liabilities
(51,694
)
 
26,892

Net cash provided by (used in) operating activities
547,582

 
176,326

Cash flows from investing activities:
 
 
 
Capital expenditures
(33,059
)
 
(16,892
)
Investments in unconsolidated entities
(1,000
)
 
(17,832
)
Other investing activities, net
6,915

 
3,143

Net cash used in investing activities
(27,144
)
 
(31,581
)
Cash flows from financing activities:
 
 
 
Repayments of debt
(82,432
)
 
(2,153
)
Borrowings under revolving credit facility
1,566,000

 
110,000

Repayments under revolving credit facility
(1,566,000
)
 
(110,000
)
Financial Services borrowings (repayments)
(173,761
)
 
(177,918
)
Debt issuance costs
(8,090
)
 
—

Stock option exercises
4,467

 
15,966

Share repurchases
(112,491
)
 
(405,819
)
Dividends paid
(52,384
)
 
(58,214
)
Net cash provided by (used in) financing activities
(424,691
)
 
(628,138
)
Net increase (decrease)
95,747

 
(483,393
)
Cash, cash equivalents, and restricted cash at beginning of period
306,168

 
723,248

Cash, cash equivalents, and restricted cash at end of period
$
401,915

 
$
239,855

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Interest paid (capitalized), net
$
(387
)
 
$
(2,359
)
Income taxes paid (refunded), net
$
77,077

 
$
(10,980
)


6



PulteGroup, Inc.
Segment Data
($000's omitted)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
HOMEBUILDING:
 
 
 
 
 
 
 
Home sale revenues
$
2,450,054

 
$
1,965,641

 
$
4,361,652

 
$
3,551,063

Land sale and other revenues
66,904

 
8,944

 
79,461

 
11,632

Total Homebuilding revenues
2,516,958

 
1,974,585

 
4,441,113

 
3,562,695

 
 
 
 
 
 
 
 
Home sale cost of revenues
(1,862,133
)
 
(1,549,937
)
 
(3,322,073
)
 
(2,767,615
)
Land sale cost of revenues
(38,183
)
 
(87,599
)
 
(49,731
)
 
(90,827
)
Selling, general, and administrative expenses ("SG&A")
(226,056
)
 
(216,211
)
 
(466,950
)
 
(452,479
)
Other expense, net
(2,133
)
 
(17,239
)
 
(3,548
)
 
(22,412
)
Income before income taxes
$
388,453

 
$
103,599

 
$
598,811

 
$
229,362

 
 
 
 
 
 
 
 
FINANCIAL SERVICES:
 
 
 
 
 
 
 
Income before income taxes
$
20,717

 
$
18,948

 
$
34,551

 
$
32,451

 
 
 
 
 
 
 
 
CONSOLIDATED:
 
 
 
 
 
 
 
Income before income taxes
$
409,170

 
$
122,547

 
$
633,362

 
$
261,813

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING METRICS:
 
 
 
 
 
 
 
Gross margin % (a)(b)
24.0
 %
 
21.1
 %
 
23.8
 %
 
22.1
 %
SG&A % (a)
(9.2
)%
 
(11.0
)%
 
(10.7
)%
 
(12.7
)%
Operating margin % (a)
14.8
 %
 
10.1
 %
 
13.1
 %
 
9.4
 %
(a)
As a percentage of home sale revenues.
(b)
Gross margin equals home sale revenues minus home sale cost of revenues.

7


PulteGroup, Inc.
Segment Data, continued
($000's omitted)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Home sale revenues
$
2,450,054

 
$
1,965,641

 
$
4,361,652

 
$
3,551,063

 
 
 
 
 
 
 
 
Closings - units
 
 
 
 
 
 
 
Northeast
401

 
296

 
652

 
528

Southeast
1,072

 
949

 
1,996

 
1,785

Florida
1,134

 
910

 
2,021

 
1,742

Midwest
872

 
907

 
1,639

 
1,575

Texas
1,096

 
1,042

 
1,905

 
1,882

West
1,166

 
940

 
2,154

 
1,757

 
5,741

 
5,044

 
10,367

 
9,269

Average selling price
$
427

 
$
390

 
$
421

 
$
383

 
 
 
 
 
 
 
 
Net new orders - units
 
 
 
 
 
 
 
Northeast
450

 
376

 
898

 
787

Southeast
1,093

 
1,193

 
2,352

 
2,270

Florida
1,347

 
1,090

 
2,791

 
2,130

Midwest
1,055

 
1,089

 
2,157

 
2,251

Texas
1,183

 
1,189

 
2,506

 
2,400

West
1,213

 
1,458

 
2,512

 
2,683

 
6,341

 
6,395

 
13,216

 
12,521

Net new orders - dollars
$
2,694,271

 
$
2,625,091

 
$
5,587,823

 
$
5,071,230

 
 
 
 
 
 
 
 
Unit backlog
 
 
 
 
 
 
 
Northeast
 
 
 
 
758

 
646

Southeast
 
 
 
 
2,072

 
1,856

Florida
 
 
 
 
2,448

 
1,806

Midwest
 
 
 
 
2,005

 
1,983

Texas
 
 
 
 
2,027

 
1,930

West
 
 
 
 
2,535

 
2,453

 
 
 
 
 
11,845

 
10,674

Dollars in backlog
 
 
 
 
$
5,205,234

 
$
4,461,680

 
 
 
 
 
 
 
 



8


    
PulteGroup, Inc.
Segment Data, continued
($000's omitted)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
MORTGAGE ORIGINATIONS:
 
 
 
 
 
 
 
Origination volume
3,635

 
3,330

 
6,627

 
6,203

Origination principal
$
1,122,017

 
$
969,691

 
$
2,031,817

 
$
1,776,043

Capture rate
75.8
%
 
78.9
%
 
76.6
%
 
79.5
%


Supplemental Data
($000's omitted)
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Interest in inventory, beginning of period
$
240,013

 
$
203,828

 
$
226,611

 
$
186,097

Interest capitalized
43,771

 
44,949

 
87,731

 
89,872

Interest expensed
(40,157
)
 
(35,927
)
 
(70,715
)
 
(63,119
)
Interest in inventory, end of period
$
243,627

 
$
212,850

 
$
243,627

 
$
212,850




9


PulteGroup, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

This report contains information about our operating results reflecting certain adjustments, including: adjustments to gross margin from home sales; selling general, and administrative expenses ("SG&A"); 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,
 
 
2018
 
2017
 
 
 
 
 
 
Net income, as reported
 
 
$
324,089

 
$
100,749

Adjustments to income before income taxes:
 
 
 
 
 
Land and community valuation adjustments
Home sale cost of revenues
 
—

 
31,487

Warranty claim
Home sale cost of revenues
 
—

 
12,106

Net realizable value adjustments - land held for sale
Land sale cost of revenues
 
—

 
81,006

Land sale gains
Land sale revenues /
cost of revenues
 
(26,402
)
 
—

Insurance reserve reversal
SG&A
 
(37,890
)
 
(19,813
)
Impairments of joint ventures
Other expense, net
 
—

 
8,017

Income tax effect of the above items
Income tax expense
 
16,086

 
(41,737
)
Net tax benefits
Income tax expense
 
(17,276
)
 
(23,808
)
Adjusted net income
 
 
$
258,607

 
$
148,007

 
 
 
 
 
 
EPS (diluted), as reported
 
 
$
1.12

 
$
0.32

Adjusted EPS (diluted)
 
 
$
0.89

 
$
0.47



10


Other Reconciliations
 
 
 
 
 
 
 
Three Months Ended
 
June 30,
 
2018
 
2017
 
 
 
 
 
 
Home sale revenues
$
2,450,054


 
$
1,965,641



 
 
 
 
 
 
Gross margin from home sales, as reported
$
587,921

24.0
%
 
$
415,704

21.1
%
Adjustments:
 
 
 
 
 
Land and community valuation adjustments
—

—
%
 
31,487

1.6
%
Warranty claim
—

—
%
 
12,106

0.6
%
Adjusted gross margin from home sales
$
587,921

24.0
%
 
$
459,297

23.4
%
 
 
 
 
 
 
SG&A, as reported
$
226,056

9.2
%
 
$
216,211

11.0
%
Adjustments:
 

 


Insurance reserve reversal
37,890

1.5
%
 
19,813

1.0
%
Adjusted SG&A
$
263,946

10.8
%
 
$
236,024

12.0
%
 
 
 
 
 
 
Operating margin, as reported*
 
14.8
%
 
 
10.1
%
Adjusted operating margin**
 
13.2
%
 
 
11.4
%
*Operating margin represents gross margin from home sales less SG&A
**Adjusted operating margin represents adjusted gross margin from home sales less adjusted SG&A


11

PULTEGROUP INC/MI/ Reports