PulteGroup Posts $128M Profit in Q3, Projects Further Growth
Originally published by: PR Newswire — October 20, 2016
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PulteGroup, Inc. announced on Thursday financial results for its third quarter ended September 30, 2016. The Company's reported Q3 net income of $128 million, or $0.37 per share, included pretax charges of $31 million, or $0.06 per share, associated with the settlement of a disputed land transaction, restructuring costs associated with previously announced plans to reduce overhead expenses, and costs relating to shareholder activities. Prior year net income of $108 million, or $0.30 per share, included net pretax charges of $14 million, or $0.03 per share, resulting from litigation-related reserve adjustments in the quarter.
"I am extremely pleased with PulteGroup's third quarter results which show a continuation of the strong demand and operating trends we experienced in the first half of 2016," said Ryan Marshall, President and Chief Executive Officer of PulteGroup. "Of particular note, the 25% increase in the value of our Q3 orders, one of the largest gains we have realized in years, benefited from the increased land investments we made in recent years and strong sales activity across all buyer groups, as first time, move up and active adult all gained over last year.
"Along with delivering strong operating and financial results, the Company also completed its announced leadership transition during the quarter as Richard Dugas retired as CEO following a successful 22-year career. As an organization, we will continue to advance the Company's Value Creation strategy which has been instrumental in elevating our financial results over the past five years to be among the industry leaders.
"With U.S. new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment and a limited inventory of homes. Given these market dynamics, and in alignment with our Value Creation strategy, we continue to grow our operations through continued investment in high returning land positions, while consistently returning funds to shareholders through dividends and share repurchases."
Third Quarter Results
Home sale revenues for the third quarter of 2016 increased 29% over the prior year to $1.9 billion. Higher revenues for the period benefited from a 16% increase in deliveries to 5,037 homes and an 11%, or $37,000, increase in average selling price to $374,000.
Home sale gross margin for the third quarter was 21.1%. Homebuilding SG&A expense for the quarter was $183 million, or 9.7% of home sale revenues, including approximately $12 million of charges for severance costs associated with actions taken to reduce overhead expenses, and for shareholder activities. Prior year SG&A of $159 million, or 10.9% of home sale revenues, included a benefit of $6 million from a litigation-related reserve adjustment taken in the period.
"The restructuring costs incurred in the third quarter were driven by actions associated with the Company's previously announced plans targeting full-year 2017 SG&A expenses of 9% of revenues, down from an expected 10% in 2016," said Bob O'Shaughnessy, Executive Vice President and CFO. "We implemented these actions with the goal of realizing greater overhead efficiency, while still being able to deliver expected growth in our business in 2017 and beyond."
In the quarter, the Company also recorded charges of $20 million in Other Expense, net, resulting from the settlement of a contract dispute associated with a land transaction the Company terminated a decade ago in response to the collapse of housing demand and from lease exit and related costs associated with overhead reduction actions. In the prior year period, the Company recorded a charge of $20 million in Other Expense, net, to increase reserves following an unfavorable jury verdict in a contract dispute.
Net new orders for the third quarter increased 17% to 4,775 homes. The value of orders increased 25% over the prior year to $1.8 billion. The Company operated out of 709 communities in the third quarter, which is an increase of 16% over the third quarter of 2015.
Backlog value increased 20% over the prior year to $3.7 billion, as the number of homes in backlog increased 8% to 9,417 homes. The average price of homes in backlog was $393,000, which is up 11% over last year.
The Company's financial services operations reported third quarter pretax income of $21 millioncompared with $14 million in 2015. Higher pretax income for the period was primarily the result of higher closing volumes in the Company's homebuilding operations. Mortgage capture rate for the quarter was 81%, compared with 83% in the prior year.
During the quarter, the Company issued $1.0 billion of senior notes, the proceeds of which were used, in part, to repay approximately $500 million of outstanding debt, to fund ongoing operations and to repurchase 12 million common shares for $250 million, or an average price of $20.77 per share.