- Net Income of $1.29 Per Share
- Adjusted Net Income of $1.15 Per Share
- Home Sale Revenues Increased 3% to $2.5 Billion
- Homebuilding Gross Margin Increased 80 Basis Points to 23.9%
- Backlog of 13,214 Homes Up 12%; Backlog Value Up 13% to $5.8 Billion
- Net New Orders Decreased 4% to 6,522 Homes
- Cash of $1.7 Billion After Repaying $700 Million on its Revolving Credit Facility
- Company Provides Update on the Impacts of COVID-19
“Following a period of demand weakness beginning in late March and into April as COVID-19 first impacted the country, new home sales experienced a material acceleration as the second quarter progressed,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup. “The recovery in demand reflects a number of factors, including: low interest rates, a restricted supply of existing-home inventory, pent-up demand following the economic shutdown, the appeal of single-family living in a new home and a desire among some buyers to exit more densely populated urban centers.”
“By effectively adjusting our business practices to the rapidly changing market dynamics caused by COVID-19, PulteGroup realized a 34% increase in adjusted earnings per share and generated strong cash flows in the current quarter. With industry leading gross margins, a backlog valued at $5.8 billion and $1.7 billion of cash on hand, the Company is well positioned to navigate current market conditions.”
Home sale revenues for the second quarter increased 3% over the prior year to $2.5 billion. Higher revenues for the quarter reflect a 6% increase in closings to 5,937 homes, partially offset by a 3% decrease in average sales price to $416,000. The lower average sales price for the period primarily reflects an ongoing shift in the Company’s product mix to include more first-time buyer homes which typically carry a lower sales price.
Gross margin for the second quarter was 23.9%, which represents an increase of 80 basis points over the second quarter of the prior year and is up 20 basis points from the first quarter of 2020. Reported SG&A expense for the quarter of $197 million, or 8.0% of home sale revenues, included the $61 million pre-tax insurance benefit and the $10 million pre-tax severance charges. Excluding these items, the Company’s adjusted SG&A expense for the quarter was $247 million, or 10.0% of home sale revenues. Prior year SG&A expense for the second quarter was $259 million, or 10.8% of home sale revenues.
Net new orders for the second quarter decreased 4% from the prior year to 6,522 homes. The dollar value of net new orders was $2.7 billion, or an average sales price of $410,000, which is down from $426,000 last year. The lower average selling price reflects the Company’s ongoing efforts to expand its sales among first-time buyers. For the quarter, the Company operated out of an average of 887 communities.
Unit backlog at the end of the quarter totaled 13,214 homes, which is an increase of 12%, or 1,421 homes, over the prior year backlog of 11,793 homes. The total value of homes in backlog of $5.8 billion, an increase of 13% over last year, reflects a favorable geographic and product mix of homes to be closed.
Second quarter pre-tax income for the Company's financial services operations was $60 million, which represents an increase of 141% over prior year second quarter pre-tax income of $25 million. The increase in pre-tax income for the period reflects a strong margin environment, higher loan volumes resulting from growth in the Company’s homebuilding operations, and a higher mortgage capture rate. Our mortgage capture rate for the second quarter increased to 87% from 81% last year.
For the quarter, the Company reported $108 million of income tax expense, representing an effective tax rate of 23.7%.
In the second quarter, the Company elected to repay $700 million that had been borrowed on its revolving credit facility in March of 2020 as a precautionary action at the start of the COVID-19 pandemic. As previously announced, the Company has suspended its share repurchase activities given uncertainties created by COVID-19.
In conjunction with announcing its second quarter financial results, the Company also provided the following update on the impact of the COVID-19 pandemic on housing demand and its overall operations:
“After a period during which we elected to close our sales centers and leverage multiple technologies to sell remotely, all of our communities are now reopened to walk-in traffic with sales staff working on-site,” said Mr. Marshall. “Our Financial Services teams also adapted their business practices to operate remotely and continue to do so currently. Our construction and manufacturing operations were deemed essential services in all but a handful of markets, so we incurred only limited production disruptions in the second quarter and are now operating at effectively full capacity in all markets. In response to the ongoing risks relating to the pandemic, all of our teams are working under enhanced safety protocols designed to protect the health of our employees, customers and trade partners.”
“PulteGroup was in a strong financial position at the start of this health crisis, but given the risks of severe economic impact we moved quickly to protect our overall liquidity and financial flexibility. Our actions included: reducing controllable expenditures, tightly managing investment in the business, drawing $700 million on our revolver, and suspending share repurchase activity. These actions, coupled with the improving operations we experienced through the quarter, resulted in strong free cash flow generation in the quarter. As a result, our cash balance at the end of the second quarter was $1.7 billion, after having repaid the $700 million we borrowed under our revolver.”
“New home demand has clearly rebounded, but we continue to take a disciplined approach to our business given the ongoing spread of the coronavirus. As a result, we are gradually increasing our land acquisition and development spend to help ensure future lot availability. We are also increasing our start cadence and related investment in house inventory, while continuing to expand our offering of first-time buyer product to meet the growing demand for more affordably priced homes. We have also recalled the majority of furloughed employees and may rehire additional staff as the recovery continues to unfold.”
“Given the strength of second quarter sales, we are encouraged about the back half of 2020 and plan to provide guidance for the remainder of the year as part of our second quarter earnings call.”
A conference call discussing PulteGroup's second quarter 2020 results is scheduled for Thursday, July 23, 2020, at 8:30 a.m. Eastern Time. Interested investors can access the live webcast via PulteGroup's corporate website at www.pultegroup.com.
This 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 potential impairment charges 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; the negative impact of the COVID-19 pandemic on our financial position and ability to continue our Homebuilding or Financial Services activities at normal levels or at all in impacted areas; the duration, effect and severity of the COVID-19 pandemic; the measures that governmental authorities take to address the COVID-19 pandemic which may precipitate or exacerbate one or more of the above-mentioned and/or other risks and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period of time; 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, 2019, 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 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’s purpose is building incredible places where people can live their dreams.
For more information about PulteGroup, Inc. and PulteGroup’s 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.