01—Abstract
Summary
Summary of the 10-K filed January 30, 2020. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM) reported 2019 consolidated revenues of $10.21 billiona and net income of $1.02 billion, or $3.66 per diluted share, compared with $1.02 billion and $3.55 per diluted share in 2018.
Homebuilding generated 98% of consolidated revenues in 2019, with home sale revenues of $9.92 billionb on 23,232 closings, up 1%. Net new orders rose 9% in units to 24,977, and ending backlog grew 20% in units to 10,507 homes, or $4.5 billion. Management attributed the improvement to demand that strengthened from mid-2019, especially among first-time buyers, after a slowdown that began in mid-2018.
Homebuilding gross margin on home sales was 23.1%, compared with 23.2% in 2018, and land-related charges fell to $27.1 millionc from $99.4 million. Financial Services income before taxes rose to $103.3 million from $58.7 million, driven by higher volume and a capture rate of 82.4%. The company ended 2019 with $1.25 billion in total cash, cash equivalents and restricted cash, $2.77 billion of notes payable, and $737.2 million available under its revolving credit facility.
It repurchased 8.4 million shares for $274.3 milliond, paid $122.4 million in dividends, and had $525.5 million of repurchase authorization remaining. The company also completed a $274.0 million tender offer for senior notes maturing in 2021 and acquired American West's Las Vegas homebuilding operations for $163.7 million.
Risks noted in the filing include exposure to construction defect and mortgage repurchase claims, with self-insurance liabilities of $709.8 million, and a $261.0 million indemnification claim from Lehman Brothers against CTX Mortgage. Management also flagged rising labor and material costs, a 2019 warranty charge of $14.8 million, and sensitivity to mortgage rates.
02—Key points
Key Highlights
- Consolidated revenues of $10.21 billion in 2019, up from $10.19 billion in 2018, with net income of $1.02 billion, or $3.66 diluted EPS (vs. $3.55 in 2018).
- Home sale revenues of $9.92 billion on 23,232 closings, with average selling price of $427,000 (vs. $425,000 in 2018).
- Net new orders rose 9% to 24,977 units; ending backlog increased 20% to 10,507 units, valued at $4.5 billion.
- Homebuilding gross margin on home sales of 23.1%, compared with 23.2% in 2018; land-related charges were $27.1 million, down from $99.4 million.
- Financial Services income before taxes was $103.3 million, up from $58.7 million, with a capture rate of 82.4%.
- Returned capital through $274.3 million of share repurchases and $122.4 million of dividends paid; $525.5 million remained under the repurchase authorization.
- Exposure to mortgage repurchase litigation, including a Lehman Brothers indemnification claim against CTX Mortgage of up to $261.0 million, and self-insurance reserves of $709.8 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed January 30, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $10.21B$10.19B | +0.2% |
| SG&A Expenses | $1.04B$1.01B | +3.2% |
| Interest Expense | $584K$618K | −5.5% |
| Net Income | $1.02B$1.02B | −0.5% |
| EPS (Basic) | $3.67$3.56 | +3.1% |
| EPS (Diluted) | $3.66$3.55 | +3.1% |
| Shares Outstanding (Basic) | 274.50M283.58M | −3.2% |
| Shares Outstanding (Diluted) | 275.30M284.87M | −3.4% |
05—Questions
Frequently Asked Questions
How did PulteGroup perform in 2019 compared with 2018?
Consolidated revenues were $10.21 billion, compared with $10.19 billion in 2018. Net income was $1.02 billion, or $3.66 per diluted share, compared with $3.55 per diluted share in 2018, even though homebuilding income before taxes declined to $1.24 billion from $1.29 billion.
What drove the change in demand during 2019?
Demand softened in mid-2018 with rising mortgage rates, leaving a smaller backlog entering 2019. Demand improved from mid-2019 onward, especially among first-time buyers, helped by wage growth, slower price appreciation, and lower mortgage interest rates. Net new orders rose 9% for the full year.
What are the main risks flagged for investors?
The filing highlights cyclical housing demand, sensitivity to mortgage rates and availability, rising labor and building material costs, potential land write-downs, and claims tied to mortgage loans sold before 2009. It also notes self-insured construction defect reserves of $709.8 million and a pending Lehman Brothers indemnification claim against CTX Mortgage of up to $261.0 million.
How did the company use its capital in 2019?
PulteGroup repurchased 8.4 million shares for $274.3 million, paid $122.4 million in dividends, and retired $310.0 million of debt, including a $274.0 million tender offer for 2021 senior notes. It ended the year with $1.25 billion in total cash, cash equivalents and restricted cash, and it increased its quarterly dividend by 9% to $0.12 per share.
What were the key acquisitions and balance sheet figures at year-end?
In April 2019 the company acquired American West's homebuilding operations in Las Vegas for $163.7 million. At December 31, 2019, total assets were $10.72 billion, notes payable were $2.77 billion, and shareholders' equity was $5.46 billion. The debt-to-total capitalization ratio, excluding Financial Services debt, was 33.6%.
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