• Home Sale Revenues Increased 29% to $1.9 Billion; Closings Increased 16% to 5,037 Homes
• Net New Orders Up 17% to 4,775; Value of Net New Orders Increased 25% to $1.8 Billion
• Backlog Value of $3.7 Billion Up 20% Over Prior Year; Unit Backlog Increased 8% to 9,417 Homes
• Proceeds from Successful $1.0 Billion Debt Offering Used to Repay Approximately $500 Million of Outstanding Debt, to Fund Operations and to Support $250 Million of Share Repurchases in the Quarter
“I am extremely pleased with PulteGroup’s third quarter results which show a continuation of the strong demand and operating trends we experienced in the first half of 2016,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup. “Of particular note, the 25% increase in the value of our Q3 orders, one of the largest gains we have realized in years, benefited from the increased land investments we made in recent years and strong sales activity across all buyer groups, as first time, move up and active adult all gained over last year.
“Along with delivering strong operating and financial results, the Company also completed its announced leadership transition during the quarter as Richard Dugas retired as CEO following a successful 22-year career. As an organization, we will continue to advance the Company’s Value Creation strategy which has been instrumental in elevating our financial results over the past five years to be among the industry leaders.
“With U.S. new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment and a limited inventory of homes. Given these market dynamics, and in alignment with our Value Creation strategy, we continue to grow our operations through continued investment in high returning land positions, while consistently returning funds to shareholders through dividends and share repurchases.”
Third Quarter Results
Home sale revenues for the third quarter of 2016 increased 29% over the prior year to $1.9 billion. Higher revenues for the period benefited from a 16% increase in deliveries to 5,037 homes and an 11%, or $37,000, increase in average selling price to $374,000.
Home sale gross margin for the third quarter was 21.1%. Homebuilding SG&A expense for the quarter was $183 million, or 9.7% of home sale revenues, including approximately $12 million of charges for severance costs associated with actions taken to reduce overhead expenses, and for shareholder activities. Prior year SG&A of $159 million, or 10.9% of home sale revenues, included a benefit of $6 million from a litigation-related reserve adjustment taken in the period.
“The restructuring costs incurred in the third quarter were driven by actions associated with the Company’s previously announced plans targeting full-year 2017 SG&A expenses of 9% of revenues, down from an expected 10% in 2016,” said Bob O’Shaughnessy, Executive Vice President and CFO. “We implemented these actions with the goal of realizing greater overhead efficiency, while still being able to deliver expected growth in our business in 2017 and beyond.”
In the quarter, the Company also recorded charges of $20 million in Other Expense, net, resulting from the settlement of a contract dispute associated with a land transaction the Company terminated a decade ago in response to the collapse of housing demand and from lease exit and related costs associated with overhead reduction actions. In the prior year period, the Company recorded a charge of $20 million in Other Expense, net, to increase reserves following an unfavorable jury verdict in a contract dispute.
Net new orders for the third quarter increased 17% to 4,775 homes. The value of orders increased 25% over the prior year to $1.8 billion. The Company operated out of 709 communities in the third quarter, which is an increase of 16% over the third quarter of 2015.
Backlog value increased 20% over the prior year to $3.7 billion, as the number of homes in backlog increased 8% to 9,417 homes. The average price of homes in backlog was $393,000, which is up 11% over last year.
The Company's financial services operations reported third quarter pretax income of $21 million compared with $14 million in 2015. Higher pretax income for the period was primarily the result of higher closing volumes in the Company’s homebuilding operations. Mortgage capture rate for the quarter was 81%, compared with 83% in the prior year.
During the quarter, the Company issued $1.0 billion of senior notes, the proceeds of which were used, in part, to repay approximately $500 million of outstanding debt, to fund ongoing operations and to repurchase 12 million common shares for $250 million, or an average price of $20.77 per share.
A conference call discussing PulteGroup's third quarter 2016 results is scheduled for Thursday, October 20, 2016, at 8:30 a.m. Eastern Time. Interested investors can access the live webcast via PulteGroup's corporate website at www.pultegroupinc.com.
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," "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 and the rate of growth in land spend; 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; 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, 2015, 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.
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.
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