01—Abstract
Summary
Summary of the 10-K filed February 7, 2018. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM) reported 2017 home sale revenues of $8.32 billiona, up 12% from 2016, on 21,052 closings (up 6%) at an average selling price of $395,000 (up 6%).
Homebuilding income before income taxes was $865.3 millionb, and total consolidated net income was $447.2 million, or $1.44 per diluted share, compared with $602.7 million in 2016. The decline in net income was driven by a provisional net tax expense of $172.1 million from the Tax Act, which pushed the effective tax rate to 52.4%. Gross margin from home sales fell to 22.4% from 25.0%, reflecting $89.0 million of land inventory impairments, a $12.4 million warranty charge, and $83.6 million of net realizable value adjustments on land held for sale tied to a May 2017 plan to sell non-core land parcels.
Net new orders rose 11% to 22,626 units, and backlog reached $4.0 billionc (8,996 units) at year-end. The balance sheet and capital return activity were significant in 2017. The company repurchased $910.3 million of shares, paid dividends of $0.09 per quarter, and ended the year with a debt-to-total-capitalization ratio of 42.0%, slightly above its targeted range of 30.0% to 40.0%.
Cash, cash equivalents, and restricted cash totaled $306.2 milliond, and $764.5 million was available under the revolving credit facility, with no borrowings outstanding. Operating cash flow was $663.1 million. In January 2018, the Board increased the share repurchase authorization by $500.0 million.
Management expects the Tax Act to have a favorable impact on results beginning in 2018 and expects to open a similar number of communities in 2018 as in 2017. Key risks flagged in the filing include the cyclical homebuilding industry, rising construction and labor costs, land acquisition competition, mortgage interest rate sensitivity, and self-insured construction defect liabilities of $758.8 million at year-end.
02—Key points
Key Highlights
- Home sale revenues rose 12% to $8.32 billion on 6% higher closings (21,052 units) and a 6% increase in average selling price to $395,000.
- Net income fell to $447.2 million ($1.44 per diluted share) from $602.7 million in 2016, largely due to a $172.1 million provisional tax expense from the Tax Act.
- Gross margin from home sales declined to 22.4% from 25.0%, including $89.0 million of land inventory impairments and a $12.4 million warranty charge.
- Net new orders increased 11% to 22,626 units, and year-end backlog grew to $4.0 billion (8,996 units), up 35% in dollars.
- The company repurchased $910.3 million of shares in 2017 and the Board added $500.0 million to the repurchase authorization in January 2018.
- Year-end debt-to-total-capitalization was 42.0%, slightly above the company's 30.0% to 40.0% target range, with $764.5 million available under the revolving credit facility.
- Operating cash flow was $663.1 million, and the company controlled 141,409 lots, of which 89,253 were owned.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 7, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $8.57B$7.67B | +11.8% |
| SG&A Expenses | $891.58M$957.15M | −6.9% |
| Interest Expense | $503K$686K | −26.7% |
| Net Income | $447.22M$602.70M | −25.8% |
| EPS (Basic) | $1.45$1.76 | −17.6% |
| EPS (Diluted) | $1.44$1.75 | −17.7% |
| Shares Outstanding (Basic) | 305.09M339.75M | −10.2% |
| Shares Outstanding (Diluted) | 306.81M342.12M | −10.3% |
05—Questions
Frequently Asked Questions
How did the Tax Act affect PulteGroup's 2017 earnings?
The company recorded a provisional net tax expense of $172.1 million related to remeasuring its deferred tax balance and other effects, which pushed the effective tax rate to 52.4% from 35.5% in 2016. Management expects the Tax Act to have a favorable impact on financial results beginning in 2018, though the accounting is not fully complete and remains subject to SAB 118 measurement-period adjustments.
Why did gross margins decline in 2017?
Home sale gross margin was 22.4% compared with 25.0% in 2016. The 2017 results include $89.0 million of land inventory impairments and a $12.4 million warranty charge, which together reduced gross margin by 120 basis points. Management also cited shifts in community mix and higher house construction and land costs as the supply chain responded to the housing recovery.
What is PulteGroup's outlook for community openings and volume growth?
The company opened approximately 250 new communities in 2017 and expects to open a similar number in 2018, which it expects will help volume grow in 2018. Active communities reached 790 at year-end, up 9% from 726 a year earlier.
How much capital did PulteGroup return to shareholders and what remains available?
In 2017 the company repurchased $910.3 million of shares (35.4 million shares) and declared quarterly dividends totaling $110.0 million, with the quarterly dividend held at $0.09 per share. At year-end, $94.4 million remained under the repurchase authorization, and in January 2018 the Board approved an increase of $500.0 million.
What are the company's main sources of liquidity and contingent obligations?
At December 31, 2017, the company had $306.2 million of cash, cash equivalents, and restricted cash and $764.5 million available under its revolving credit facility, which had no borrowings outstanding. Letters of credit totaled $235.5 million and surety bonds totaled $1.2 billion. Self-insured risk reserves were $758.8 million, and the company estimated a reasonably possible range of losses of $650 million to $875 million.
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