01—Abstract
Summary
Summary of the 10-K filed February 2, 2021. Cited figures are marked; the original filing is the authoritative source.
PulteGroup, Inc. (NYSE: PHM), one of the largest U.S. homebuilders, reported a strong 2020 in its annual report.
Consolidated revenues rose to $11.04 billiona from $10.21 billion in 2019, and net income increased to $1.41 billion, or $5.18 per diluted share, from $1.02 billion, or $3.66 per diluted share. Homebuilding generated 97% of 2020 consolidated revenues. Homebuilding closings reached 24,624 homes, up from 23,232, and the average selling price was $430,000.
Net new orders rose 17% in units to 29,275, and year-end backlog reached $6.8 billionb (15,158 units), the highest year-end backlog in dollars in the company's history. The filing notes that the COVID-19 pandemic initially disrupted operations and sales in the spring of 2020, but demand rebounded sharply from June onward. Balance sheet and capital allocation improved over the year.
Liquidity totaled $3.4 billionc at year-end, consisting of $2.6 billion in cash and cash equivalents and $750.3 million available under the Revolving Credit Facility. The company repaid the $700.0 million it drew in March 2020 as a precaution, reinstated share repurchases in October 2020 (repurchasing 4.5 million shares for $170.7 million during the year), and raised its quarterly dividend 17% to $0.14 per share. The debt-to-total-capitalization ratio, excluding Financial Services debt, was 29.5%, slightly below the company's 30.0% to 40.0% target range.
Financial Services income before taxes rose to $186.6 milliond, helped by higher volume and a low mortgage-rate environment, though it absorbed $26.4 million in mortgage repurchase reserve charges. The filing also highlights risks. Management cites ongoing COVID-19 uncertainty, labor and material cost pressures (especially lumber), elongated production cycles, and a $1.5 billion surety bond exposure.
Insurance-related reserve reversals of $93.4 million boosted 2020 results, and the company recorded a $20.2 million goodwill impairment on its Innovative Construction Group acquisition. Investors should weigh the strong 2020 earnings and backlog against these cost and pandemic-related uncertainties.
02—Key points
Key Highlights
- Consolidated revenues of $11.04 billion in 2020, up from $10.21 billion in 2019; net income of $1.41 billion, or $5.18 per diluted share, versus $3.66 in 2019.
- Homebuilding income before income taxes increased 25% to $1.54 billion, driven by higher revenues, a 24.3% home sale gross margin (up from 23.1%), and lower SG&A as a percentage of home sale revenues (9.6% versus 10.5%).
- Net new orders rose 17% in units to 29,275 and 21% in dollars to $12.84 billion, with year-end backlog of $6.8 billion (15,158 units), the highest year-end backlog in dollars in the company's history.
- Liquidity of $3.4 billion at December 31, 2020, including $2.6 billion of cash and $750.3 million available under the Revolving Credit Facility; the $700.0 million drawn in March 2020 was fully repaid in June 2020.
- Shareholder returns resumed: $170.7 million of share repurchases in 2020 (4.5 million shares), $354.9 million remaining authorization, and a quarterly dividend increase of 17% to $0.14 per share.
- Debt-to-total-capitalization (excluding Financial Services debt) of 29.5%, slightly below the company's 30.0% to 40.0% long-term target range.
- Financial Services income before income taxes rose to $186.6 million from $103.3 million, though results included $26.4 million of mortgage repurchase reserve charges.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 2, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $11.04B$10.21B | +8.1% |
| SG&A Expenses | $1.01B$1.04B | −3.1% |
| Interest Expense | $4.25M$584K | +627.4% |
| Net Income | $1.41B$1.02B | +38.4% |
| EPS (Basic) | $5.19$3.67 | +41.4% |
| EPS (Diluted) | $5.18$3.66 | +41.5% |
| Shares Outstanding (Basic) | 268.55M274.50M | −2.2% |
| Shares Outstanding (Diluted) | 269.41M275.30M | −2.1% |
05—Questions
Frequently Asked Questions
How did PulteGroup perform financially in 2020?
Consolidated revenues rose to $11.04 billion from $10.21 billion, and net income increased to $1.41 billion, or $5.18 per diluted share, compared with $1.02 billion, or $3.66 per diluted share, in 2019. Income before income taxes was $1.73 billion, up from $1.34 billion. The company's effective tax rate fell to 18.6% from 24.1%, primarily due to the extension of federal energy efficient home credits, which provided an $82.0 million benefit.
What was the impact of COVID-19 on PulteGroup's operations?
The filing states that the pandemic caused the company to close sales centers to the general public, limit construction, and reduce headcount, and that net new orders declined significantly in late March through April. Demand stabilized in May and rebounded sharply in June, leading to a 17% increase in net new orders for the full year. The company notes that periodic supply chain and labor disruptions have elongated production cycles in some markets, and that the resurgence of the pandemic may require new operating restrictions.
How strong is PulteGroup's backlog and what does it signal for 2021?
Backlog at December 31, 2020 was $6.8 billion, representing 15,158 units, up 50% in dollars and 44% in units from a year earlier. The filing states that substantially all backlog orders are scheduled to close during 2021, though all orders remain subject to potential cancellation. The cancellation rate was 14% for the full year 2020 and 12% in the fourth quarter.
What risks should investors be aware of from this filing?
Key risks include the ongoing COVID-19 pandemic and possible renewed restrictions, rising costs of labor and materials (particularly lumber), and supply chain constraints. The filing also discloses $1.5 billion in outstanding surety bonds and $249.7 million in letters of credit. Self-insured construction defect reserves totaled $641.8 million, with a range of reasonably possible losses of $550 million to $750 million. The company also recorded a $20.2 million goodwill impairment related to its Innovative Construction Group acquisition.
How is PulteGroup managing its capital and debt?
The company repaid its $700.0 million revolving credit draw, reinstated share repurchases in October 2020, and announced a tender offer for up to $300 million of senior notes maturing in 2026 and 2027. Senior unsecured notes totaled $2.7 billion at year-end, with $426.0 million scheduled to mature in March 2021. The company stated its capital priorities as investing in the business, funding the dividend, maintaining a debt-to-capital ratio of 30.0% to 40.0%, and returning excess funds to shareholders through share repurchases.
06—Continue