PulteGroup, Inc. Reports First Quarter 2020 Financial Results
Friday, April 24th, 2020
In conjunction with announcing its first quarter financial results, PulteGroup, Inc. (NYSE: PHM) also discussed the impact of the COVID-19 pandemic on housing demand, its workforce and the Company’s overall homebuilding operations.
“The U.S. housing industry carried tremendous momentum into 2020, until the devastating effects of the COVID-19 pandemic began impacting the country,” said Ryan Marshall, PulteGroup President and CEO. “As the coronavirus spread and state and local governments implemented various restrictions and stay-in-place orders, we experienced a material slowdown in consumer traffic and sales activity beginning in mid-March.”
Mr. Marshall added, “In response to the pandemic’s impact, we have altered our operating processes and short-term objectives to help protect the health and safety of our customers and employees, while working to properly position our business for the current economic crisis and ultimate business recovery. As part of this effort, we are maximizing the use of technology to enable the virtual selling, design and closing of our homes. Where in-person interactions are required, we have implemented appropriate social-distancing practices and enhanced on-site cleaning and disinfecting processes.”
“Within those markets where residential construction has been deemed an essential service, we have also refined our building practices to help ensure our trades can operate safely and with appropriate distancing within our homes. We are also working closely with our trade partners to maintain building and cost efficiencies during this period of volatility.”
“Benefitting from our success in running a highly profitable and high returning business, we entered this period of economic weakness in an extremely strong financial position. Still, given the severity of the slowdown and the general uncertainty about the speed of recovery in the U.S. economy, we have taken steps to closely manage our cash flows and overall liquidity. Broadly, our focus is on minimizing future cash outflows associated with home construction, land development, land acquisition and general operating costs, while maximizing cash inflows through home closings.”
“Given the extent of business disruption and the uncertainty relating to government efforts to restart local economies, we are withdrawing our previous guidance for PulteGroup’s 2020 financial results and will suspend providing such guidance for the foreseeable future. Beyond the business implications of COVID-19, we are fully aware of the devastating personal impacts this disease is having. Our thoughts and best wishes go out to the people impacted by this virus and to all those battling to control its spread.”
First-Quarter Financial Results
For the first quarter ended March 31, 2020, PulteGroup reported net income of $204 million, or $0.74 per share, which is an increase over prior year reported net income of $167 million, or $0.59 per share.
Home sale revenues for the first quarter increased 14% to $2.2 billion. The increase in revenue for the period was driven by a 16% increase in the number of homes closed to 5,373, partially offset by a 2% decrease in average selling price to $413,000. The lower average sales price primarily reflects changes in the product and geographic mix of homes closed in this quarter compared with the first quarter of 2019.
Home sale gross profit for the quarter increased to $527 million, or 23.7% of home sale revenues, compared with prior year first quarter gross profit of $457 million, or 23.4% of home sale revenues. SG&A expense for the first quarter was $264 million, or 11.9% of home sale revenues, compared with prior year first quarter SG&A expense of $253 million, or 13.0% of home sale revenues. Operating margin for the period increased by 130 basis points to 11.8%.
Net new orders for the first quarter increased 16% to 7,495 homes, while the value of orders increased 19% to $3.3 billion. For the first quarter, the Company operated from an average of 873 communities, which is an increase of 4% over the first quarter average of 843 communities last year.
Quarter-end backlog increased 20% over last year to 12,629 homes, while related backlog value increased 21% to $5.6 billion. The average sales price in backlog increased $4,000, or 1%, over the prior year to $442,000.
PulteGroup’s financial services operations generated pretax income of $20 million, up from pretax income in the first quarter of last year of $12 million. Mortgage capture rate for the quarter increased to 87%, up from 80% last year.
The Company ended the quarter with $1.9 billion of cash, which includes the receipt of $700 million in connection with the Company’s decision to draw on its revolving bank facility in March of this year. During the quarter, the Company repurchased 2.8 million common shares for $96 million, or an average price of $33.86 per share.
“While our strong business results have allowed us to maintain an elevated cash position, we elected to draw on our revolving credit agreement in an abundance of caution due to the dramatic impact and broad economic uncertainties the COVID-19 pandemic has created,” said Bob O’Shaughnessy, Executive Vice President and CFO. “Further, given the economic uncertainties, we have also elected to suspend all stock repurchase activities.”