01—Abstract
Summary
Summary of the 10-K filed February 1, 2017. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM), a Michigan corporation organized in 1956, is one of the largest U.S. homebuilders, operating in 49 markets across 25 states at December 31, 2016 through Centex, Pulte Homes, Del Webb, DiVosta Homes, and John Wieland Homes and Neighborhoods brands.
In 2016, home sale revenues rose 29% to $7.45 billiona on closings of 19,951 homes (up 16%), with the average selling price increasing to $373,000 from $338,000. Homebuilding income before income taxes was $860.8 million, and consolidated net income was $602.7 million, or $1.75 per diluted share, compared with $494.1 million, or $1.36, in 2015. Gross margin from home sales declined to 25.0% from 26.9%, which the company attributed partly to fair value adjustments on the Wieland assets acquired in January 2016 for $430.5 million.
Net new orders rose 13% to 20,326 units, and backlog grew to $2.9 billionb (7,422 units). The company opened about 200 new communities, ending the year with 726 active communities, and expects to open more in 2017. Cash, cash equivalents and restricted cash totaled $723.2 million, with no borrowings under the $750 million revolving credit facility and $530.9 million available.
Senior notes rose to $3.11 billionc after $2.0 billion of 2016 issuances. Operating cash flow was $68.3 million, reflecting a $897.1 million increase in inventories. The company repurchased $600.0 million of shares and retains $1.0 billion of repurchase authorization, and its debt-to-total-capitalization ratio was 40.0%.
The filing also discloses risk items for investors, including a range of $750 million to $975 milliond for reasonably possible losses on general liability construction defect claims, against recorded reserves of $831.1 million. Receivables from insurance carriers were $307.3 million, of which $113.6 million is in litigation. Pulte Mortgage originated loans for 65% of homes sold, with a capture rate of 81.2%.
02—Key points
Key Highlights
- Home sale revenues increased 29% to $7.45 billion in 2016, driven by a 16% increase in closings to 19,951 homes and a 10% increase in average selling price to $373,000.
- Net income was $602.7 million, or $1.75 per diluted share, up from $494.1 million, or $1.36, in 2015.
- Gross margin from home sales declined to 25.0% from 26.9%, partly due to fair value adjustments on Wieland assets acquired in January 2016 for $430.5 million.
- Net new orders increased 13% to 20,326 units, and backlog reached $2.9 billion (7,422 units) at year-end, up 20% in dollars.
- Ended 2016 with 726 active communities, up 17%, and expects to open a higher number of communities in 2017.
- Repurchased $600.0 million of shares in 2016 and retains $1.0 billion of repurchase authorization; quarterly dividend held at $0.09 per share.
- Balance sheet liquidity included $723.2 million of cash, cash equivalents and restricted cash and $530.9 million available under the revolving credit facility; debt-to-total-capitalization was 40.0%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 1, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.67B$5.98B | +28.2% |
| SG&A Expenses | $957.15M$794.73M | +20.4% |
| Interest Expense | $686K— | — |
| Net Income | $602.70M$494.09M | +22.0% |
| EPS (Basic) | $1.76$1.38 | +27.5% |
| EPS (Diluted) | $1.75$1.36 | +28.7% |
| Shares Outstanding (Basic) | 339.75M356.58M | −4.7% |
| Shares Outstanding (Diluted) | 342.12M359.79M | −4.9% |
05—Questions
Frequently Asked Questions
What drove PulteGroup's revenue growth in 2016?
Home sale revenues rose 29% to $7.45 billion. The filing attributes this to a 10% increase in average selling price and a 16% increase in closings, with the Wieland acquisition contributing 6 percentage points of revenue growth and 4 percentage points of closings growth. The company also cited a continued shift toward move-up buyers.
Why did gross margins decline in 2016?
Home sale gross margin fell to 25.0% from 26.9%. The filing states that Wieland assets contributed 60 basis points to the decrease, primarily from required fair value adjustments on acquired homes in production and related lots. Shifts in community mix and higher house construction and land costs also contributed, partially offset by lower amortized interest costs.
How much exposure does the company have to construction defect and general liability claims?
Recorded self-insurance reserves totaled $831.1 million at December 31, 2016, down from $924.6 million a year earlier. The company estimates the range of reasonably possible losses on these claims at $750 million to $975 million. Receivables from insurance carriers were $307.3 million, of which $113.6 million is subject to litigation with certain carriers.
How is PulteGroup returning capital to shareholders?
In 2016 the company repurchased 30.9 million shares for $600.0 million and declared dividends of $122.2 million, with a quarterly dividend of $0.09 per share. At year-end, $1.0 billion remained available under the share repurchase authorization, which has no expiration date.
What is the company's debt and liquidity position?
Senior notes totaled $3.11 billion at December 31, 2016, after the company issued $2.0 billion of senior unsecured notes in 2016. The company had no borrowings under its $750 million unsecured revolving credit facility, with $219.1 million of letters of credit issued and $530.9 million available. It reported being in compliance with all covenants, and the debt-to-total-capitalization ratio was 40.0%.
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