01—Abstract
Summary
Summary of the 10-K filed February 8, 2016. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM), one of the largest homebuilders in the U.S., reported 2015 results in its Form 10-K filed February 8, 2016.
Consolidated revenues were $5.98 billiona and net income was $494.1 million, or $1.36 per diluted share, compared with $474.3 million in 2014. Homebuilding income before income taxes rose to $757.3 million from $635.2 million, driven by higher gross margins and revenues. Home sale revenues increased 2% to $5.79 billion, closings were flat at 17,127 units, and the average selling price rose to $338,000.
Gross margin from home sales was 23.3%, unchanged from 2014 and among the highest in the Company's history, according to the filing. Demand strengthened, with net new orders up 8% to 18,008 units and ending backlog up 15% in units to 6,731 units, or $2.5 billionb. The Company opened about 200 new communities and the active community count rose 4% to 620.
Management said labor constraints and weather delayed some closings. Operating cash flow was negative $348.1 millionc, primarily because inventories increased $927.8 million as land investment rose. Cash and equivalents ended the year at $754.2 million, and the Company had no borrowings under its $500.0 million revolving credit facility.
In 2015 it also entered a $500.0 milliond term loan, repurchased $433.7 million of shares, and raised its quarterly dividend from $0.08 to $0.09 per share. The ratio of debt to total capitalization was 30.5%. The filing also discloses a $20.0 million charge tied to the Applecross litigation, which is under post-trial motions and a possible appeal.
Insurance reserve reversals of $62.2 million favorably affected 2015 results. General liability reserves totaled $692.1 million, with a reasonably possible range of $625 million to $800 million. The Company agreed to acquire substantially all of the assets of JW Homes in January 2016 for approximately $430.0 million in cash.
02—Key points
Key Highlights
- Net income of $494.1 million, or $1.36 per diluted share, versus $474.3 million, or $1.26 per diluted share, in 2014
- Home sale revenues of $5.79 billion, up 2%; closings flat at 17,127 units; average selling price up to $338,000 from $329,000
- Gross margin from home sales held at 23.3%, which the filing describes as among the highest annual gross margins in the Company's history
- Net new orders rose 8% to 18,008 units; ending backlog rose 15% in units to 6,731 and 26% in dollars to $2.5 billion
- Operating cash flow was negative $348.1 million, driven by a $927.8 million increase in inventories tied to higher land investment; cash ended at $754.2 million
- Shareholder returns: $433.7 million in share repurchases, a dividend raised to $0.09 per quarter, and $604.8 million of repurchase authorization remaining
- Balance sheet: debt to total capitalization of 30.5%, a new $500.0 million term loan, and no revolver borrowings at year-end
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 8, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $5.98B$5.82B | +2.7% |
| SG&A Expenses | $794.73M$861.39M | −7.7% |
| Net Income | $494.09M$474.34M | +4.2% |
| EPS (Basic) | $1.38$1.27 | +8.7% |
| EPS (Diluted) | $1.36$1.26 | +7.9% |
| Shares Outstanding (Basic) | 356.58M370.38M | −3.7% |
| Shares Outstanding (Diluted) | 359.79M374.10M | −3.8% |
05—Questions
Frequently Asked Questions
How did PulteGroup's core homebuilding profitability change in 2015?
Homebuilding income before income taxes increased to $757.3 million from $635.2 million in 2014. The filing attributes the improvement primarily to higher gross margins and revenues. Home sale gross margin was 23.3% in both years, and SG&A fell to 10.2% of home sale revenues from 11.8%, largely because of a $62.2 million insurance reserve reversal in 2015 versus a $69.3 million charge in 2014.
Why was operating cash flow negative in 2015?
Net cash used in operating activities was $348.1 million. The filing states the main driver was a $927.8 million increase in inventories from significantly higher land acquisition and development investment, along with more spec homes to support a more even production cycle in 2016. Income before income taxes of $816.0 million partly offset this.
What are the main litigation and reserve risks disclosed?
The Applecross matter led to a jury verdict of $20.0 million against the Company, for which a $20.0 million reserve was recorded in 2015. The Company has filed post-trial motions and plans to appeal if unsuccessful. General liability reserves totaled $692.1 million, with a reasonably possible loss range of $625 million to $800 million, and the filing notes actual costs could differ from estimates.
What growth plans did management describe for 2016?
Management said it expects to open an even higher number of new communities in 2016 than in 2015, which it expects will help volume grow. The Company acquired substantially all of the assets of JW Homes in January 2016 for approximately $430.0 million in cash, which it expects to contribute to growth. The filing also notes that labor constraints and entitlement delays are challenges.
06—Continue