PulteGroup reports Q3 net income rose to US$2.3B from US$116.6M a year earlier, driven by US$2.1B gain related to deferred tax asset valuation allowance reversal; home sales revenues up 21% to US$1.5B, average selling price up 11% to US$310,000
Allison Oesterle
BLOOMFIELD HILLS, Michigan
,
October 24, 2013
(press release)
–
PulteGroup, Inc. Consolidated Results of Operations ($000's omitted, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Revenues: Homebuilding Home sale revenues $ 1,491,959 $ 1,232,704 $ 3,811,386 $ 3,070,895 Land sale revenues 55,783 22,623 102,299 69,770 1,547,742 1,255,327 3,913,685 3,140,665 Financial Services 34,336 47,264 110,571 112,367 Total revenues 1,582,078 1,302,591 4,024,256 3,253,032 Homebuilding Cost of Revenues: Home sale cost of revenues 1,180,137 1,023,704 3,072,425 2,605,249 Land sale cost of revenues 49,933 21,061 92,661 62,069 1,230,070 1,044,765 3,165,086 2,667,318 Financial Services expenses 23,244 20,578 68,867 62,914 Selling, general and administrative expenses 138,637 125,191 418,794 372,691 Other expense (income), net 17,055 7,453 79,166 24,570 Interest income (1,036) (1,219) (3,321) (3,582) Interest expense 171 201 544 616 Equity in (earnings) loss of unconsolidated entities (785) (284) (282) (3,836) Income before income taxes 174,722 105,906 295,402 132,341 Income tax expense (benefit) (2,107,162) (10,727) (2,104,661) (15,062) Net income $ 2,281,884 $ 116,633 $ 2,400,063 $ 147,403 Per share: Basic earnings $ 5.92 $ 0.31 $ 6.20 $ 0.39 Diluted earnings $ 5.87 $ 0.30 $ 6.14 $ 0.38 Cash dividends declared $ 0.10 $ — $ 0.10 $ — PulteGroup, Inc. Condensed Consolidated Balance Sheets ($000's omitted) (Unaudited) September 30, 2013 December 31, 2012 ASSETS Cash and equivalents $ 1,349,994 $ 1,404,760 Restricted cash 69,421 71,950 House and land inventory 4,150,964 4,214,046 Land held for sale 65,100 91,104 Land, not owned, under option agreements 27,612 31,066 Residential mortgage loans available-for-sale 296,922 318,931 Investments in unconsolidated entities 45,006 45,629 Other assets 440,524 407,675 Intangible assets 139,423 149,248 Deferred tax assets, net 2,108,756 — $ 8,693,722 $ 6,734,409 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable $ 214,098 $ 178,274 Customer deposits 173,665 101,183 Accrued and other liabilities 1,445,649 1,418,063 Income tax liabilities 196,870 198,865 Financial Services debt 115,098 138,795 Senior notes 2,056,657 2,509,613 4,202,037 4,544,793 Shareholders' equity 4,491,685 2,189,616 $ 8,693,722 $ 6,734,409 PulteGroup, Inc. Consolidated Statements of Cash Flows ($000's omitted) (Unaudited) Nine Months Ended September 30, 2013 2012 Cash flows from operating activities: Net income $ 2,400,063 $ 147,403 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Deferred income taxes (2,108,756) — Write-down of land inventory and deposits and pre-acquisition costs 6,371 12,623 Depreciation and amortization 23,134 22,278 Stock-based compensation expense 21,570 14,368 Equity in (earnings) loss of unconsolidated entities (282) (3,836) Distributions of earnings from unconsolidated entities 1,693 7,223 Loss on debt retirements 26,930 — Other non-cash, net 5,943 5,254 Increase (decrease) in cash due to: Restricted cash 1,654 (966) Inventories 89,040 160,973 Residential mortgage loans available-for-sale 21,967 (5,275) Other assets (29,989) (1,612) Accounts payable, accrued and other liabilities 97,607 63,832 Income tax liabilities (1,995) (1,033) Net cash provided by (used in) operating activities 554,950 421,232 Cash flows from investing activities: Distributions from unconsolidated entities 200 2,696 Investments in unconsolidated entities (1,057) (1,266) Net change in loans held for investment 236 736 Change in restricted cash related to letters of credit 875 26,096 Proceeds from the sale of property and equipment 9 4,705 Capital expenditures (18,354) (10,597) Net cash provided by (used in) investing activities (18,091) 22,370 Cash flows from financing activities: Financial Services borrowings (repayments) (23,697) 103,000 Other borrowings (repayments) (477,220) (92,493) Stock option exercises 18,549 27,432 Stock repurchases (89,940) (961) Dividends paid (19,317) — Net cash provided by (used in) financing activities (591,625) 36,978 Net increase (decrease) in cash and equivalents (54,766) 480,580 Cash and equivalents at beginning of period 1,404,760 1,083,071 Cash and equivalents at end of period $ 1,349,994 $ 1,563,651 Supplemental Cash Flow Information: Interest paid (capitalized), net $ (18,304) $ (28,072) Income taxes paid (refunded), net $ (792) $ (12,901) PulteGroup, Inc. Segment Data ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 HOMEBUILDING: Home sale revenues $ 1,491,959 $ 1,232,704 $ 3,811,386 $ 3,070,895 Land sale revenues 55,783 22,623 102,299 69,770 Total Homebuilding revenues 1,547,742 1,255,327 3,913,685 3,140,665 Home sale cost of revenues 1,180,137 1,023,704 3,072,425 2,605,249 Land sale cost of revenues 49,933 21,061 92,661 62,069 Selling, general and administrative expenses 138,637 125,191 418,794 372,691 Equity in (earnings) loss of unconsolidated entities (749) (243) (186) (3,714) Other expense (income), net 17,055 7,453 79,166 24,570 Interest income, net (865) (1,018) (2,777) (2,966) Income before income taxes $ 163,594 $ 79,179 $ 253,602 $ 82,766 FINANCIAL SERVICES: Income before income taxes $ 11,128 $ 26,727 $ 41,800 $ 49,575 CONSOLIDATED: Income before income taxes $ 174,722 $ 105,906 $ 295,402 $ 132,341 PulteGroup, Inc. Segment Data, continued ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Home sale revenues $ 1,491,959 $ 1,232,704 $ 3,811,386 $ 3,070,895 Closings - units Northeast 532 456 1,212 1,224 Southeast 823 776 2,209 1,984 Florida 760 588 1,992 1,633 Texas 976 923 2,833 2,484 North 926 863 2,333 2,057 Southwest 800 812 2,223 1,969 4,817 4,418 12,802 11,351 Average selling price $ 310 $ 279 $ 298 $ 271 Net new orders - units Northeast 405 432 1,519 1,599 Southeast 714 787 2,560 2,384 Florida 589 679 2,094 2,147 Texas 813 978 2,881 3,212 North 720 939 2,665 2,872 Southwest 540 729 2,147 2,899 3,781 4,544 13,866 15,113 Net new orders - dollars (a) $ 1,210,976 $ 1,312,490 $ 4,312,597 $ 4,257,541 Unit backlog Northeast 929 800 Southeast 1,262 1,002 Florida 1,167 1,172 Texas 1,503 1,553 North 1,599 1,524 Southwest 1,062 1,635 7,522 7,686 Dollars in backlog $ 2,432,747 $ 2,246,296 (a) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders. PulteGroup, Inc. Segment Data, continued ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 MORTGAGE ORIGINATIONS: Origination volume 3,126 3,073 8,660 7,697 Origination principal $ 733,433 $ 685,001 $ 1,998,697 $ 1,681,321 Capture rate 79.5% 82.6% 80.5% 81.3% Supplemental Data ($000's omitted) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Interest in inventory, beginning of period $ 298,575 $ 358,451 $ 331,880 $ 355,068 Interest capitalized 35,962 50,730 118,527 153,369 Interest expensed (68,013) (57,155) (183,883) (156,411) Interest in inventory, end of period $ 266,524 $ 352,026 $ 266,524 $ 352,026 Interest incurred $ 35,962 $ 50,730 $ 118,527 $ 153,369 PulteGroup, Inc. This report contains information about our home sale gross margins and earnings per share reflecting certain adjustments. 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 operating performance. Management and our local divisions use adjusted home sale gross margin in evaluating the operating performance of each community and in making strategic decisions regarding sales pricing, construction and development pace, product mix, and other daily operating decisions. We believe adjusted home sale gross margin is a relevant and useful measure to investors for evaluating our performance through gross profit generated on homes delivered during a given period and that both adjusted home sale gross margin and earnings per share reflecting certain adjustments are useful measures for comparing our operating performance 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 gross margins and earnings per share and any adjustments thereto before comparing our measures to those of such other companies. The following tables set forth a reconciliation of these non-GAAP financial measures to the GAAP financial measures that management believes to be most directly comparable ($000's omitted): Adjusted Home Sale Gross Margin Three Months Ended September 30, 2013 June 30, 2013 March 30, 2013 December 31, 2012 September 30, 2012 Home sale revenues $ 1,491,959 $ 1,219,675 $ 1,099,752 $ 1,481,517 $ 1,232,704 Home sale cost of revenues 1,180,137 990,818 901,470 1,228,201 1,023,704 Home sale gross margin 311,822 228,857 198,282 253,316 209,000 Add: Land and community valuation adjustments (a) — — — 2,250 385 Capitalized interest amortization (a) 68,013 62,193 53,677 67,880 57,155 Adjusted home sale gross margin $ 379,835 $ 291,050 $ 251,959 $ 323,446 $ 266,540 Home sale gross margin as a percentage of home sale revenues 20.9% 18.8% 18.0% 17.1% 17.0% Adjusted home sale gross margin as a percentage of home sale revenues 25.5% 23.9% 22.9% 21.8% 21.6% (a) Write-offs of capitalized interest related to impairments are reflected in capitalized interest amortization. Adjusted Earnings Per Share Dollars Earnings Per Share Net income $ 2,281,884 $ 5.87 Less: reversal of deferred tax asset valuation allowance (2,108,756) (5.46) Addback: earnings per share allocated to participating securities (b) — 0.04 (2,108,756) (5.42) Adjusted net income, excluding reversal of deferred tax asset valuation allowance $ 173,128 $ 0.45 (b) Represents required adjustments under the "two class method" of calculating earnings per share. The effect of the two class method on the Company's earnings per share was exacerbated for the three and nine months ended September 30, 2013, by the impact the deferred tax asset valuation allowance reversal had on the Company's net income. In future periods, the impact of the two class method on the Company's earnings per share is expected to be de minimis.
PulteGroup, Inc. (NYSE: PHM) announced today financial results for its third quarter ended September 30, 2013. For the quarter, the Company reported net income of $2.3 billion, or $5.87 per share, including $2.1 billion, or $5.42 per share, relating to the reversal of substantially all of the Company's deferred tax asset valuation allowance. Excluding the impact of the deferred tax asset valuation allowance reversal, net income would have been $173 million, or $0.45 per share, compared with prior year net income of $117 million, or $0.30 per share.
"PulteGroup's third quarter financial results demonstrate continued progress in our strategic repositioning of the Company to deliver better earnings and returns on invested capital," said Richard J. Dugas, Jr., Chairman, President and Chief Executive Officer of PulteGroup. "We are extremely pleased with the gains in profitability and overall returns that our Value Creation initiatives continue to drive within our homebuilding operations, while our stronger balance sheet provides us the flexibility to systematically increase investment into the business while also returning funds to our shareholders.
"We are running our business with a more balanced approach to capital allocation. Through the first nine months of 2013, we have invested $918 million in land and development, retired $461 million of debt, repurchased $83 million of our common stock, and declared $38 million in dividends. We believe that by being more balanced in our allocation of capital across investment opportunities, we can deliver better returns over a housing cycle.
"Our disciplined investment strategies should help to keep the Company in a strong position when facing changes in market conditions such as the reduced demand the industry experienced during the third quarter. While consumers have recently slowed home purchases due to higher home prices, a rapid rise in mortgage rates, and political and economic uncertainty, we believe the slowdown will ultimately prove to be short lived within a sustained, multiyear housing recovery. Consistent with this view, we have increased our annual land investment authorization to $1.6 billion for 2014, which represents an incremental $200 million of investment from our current forecast for 2013 and almost $700 million from full year 2012 expenditures. Even after this planned increase, we have significant financial flexibility to take advantage of market opportunities that may develop."
Third Quarter Results
Home sale revenues for the third quarter increased 21% from the prior year to $1.5 billion. Higher revenues for the period were driven by an 11% increase in average selling price to $310,000, combined with a 9% increase in closings to 4,817 homes. The higher average selling price realized in the quarter reflects price increases implemented by the Company and a continued shift in the mix of homes closed toward more move-up and active adult homes which typically carry higher selling prices.
For the quarter, pretax income from homebuilding operations more than doubled to $164 million, compared with prior year pretax income of $79 million. The Company's adjusted home sale gross margin for the third quarter was 25.5%, an increase of 390 basis points over the prior year and 160 basis points over the second quarter of 2013. Reported gross margin for the period increased 390 basis points over the prior year to 20.9%, and increased 210 basis points over the second quarter of 2013. Homebuilding SG&A expense for the quarter was $139 million, or 9.3% of home sale revenues, compared with prior year SG&A expense of $125 million, or 10.2% of home sale revenues.
Net new orders for the third quarter totaled 3,781 homes, which is a decrease of 17% from the prior year. On a dollar basis, signup value was $1.2 billion, which is down 8% from the third quarter of 2012. The Company ended the quarter with 604 active communities, which is down 15% from the comparable prior year period. PulteGroup's quarter-end backlog of 7,522 homes was valued at $2.4 billion, compared with prior year backlog of 7,686 homes with a value of $2.2 billion.
The Company's financial services operations reported third quarter pretax income of $11 million, compared with prior year pretax income of $27 million. Lower pretax income for the period reflects the impact of less favorable market conditions and increased competition resulting from the rapid rise in interest rates, partially offset by higher loan originations. Mortgage capture rate for the quarter was 80% compared with 83% for the same quarter last year.
Through open-market transactions, PulteGroup repurchased 5.3 million of its common shares, at a cost of $83 million, and $27 million of outstanding senior notes during the quarter.
A conference call discussing PulteGroup's third quarter 2013 results is scheduled for Thursday, October 24, 2013, 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," "project," "may," "can," "could," "might," "will" and similar expressions identify forward-looking statements, including statements related to 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; continued volatility in the debt and equity markets; competition within the industries in which PulteGroup operates; the availability and cost of land and other raw materials used by PulteGroup in its 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; the availability and cost of insurance covering risks associated with PulteGroup's 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; economic changes nationally or in PulteGroup's 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; 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, 2012, 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. PulteGroup 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 Bloomfield Hills, Mich., 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 and DiVosta Homes, 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 and www.divosta.com.
Reconciliation of Non-GAAP Financial Measures
SOURCE PulteGroup, Inc.
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