PulteGroup Reports Third Quarter 2011 Financial Results

BLOOMFIELD HILLS, Mich., Oct. 27, 2011 /PRNewswire/ --

  • Homebuilding Revenues Increase 7% to $1.1 Billion as Closings Climb 9% to 4,198 Homes
  • Adjusted Home Sale Gross Margin of 18.5%; Up from 16.7% in Prior Year and 17.2% in Second Quarter 2011
  • Reported Net Loss of $129 Million Includes a $241 Million Goodwill Impairment Charge Partially Offset by a $73 Million Tax Benefit
  • Homebuilding SG&A Drops to 10.6% of Home Sale Revenues
  • Net New Orders of 3,564 Homes, Flat with Prior Year on 4% Fewer Communities
  • Quarter-end Backlog of 5,143 Homes Valued at $1.4 Billion
  • Cash Balance at Quarter End of $1.3 Billion

PulteGroup, Inc. (NYSE: PHM) announced today financial results for its third quarter ended September 30, 2011. For the quarter, the Company reported a net loss of $129 million, or $0.34 per share, inclusive of a goodwill impairment charge of $241 million, or $0.63 per share, and land related charges of $4 million, or $0.01 per share, partially offset by a $73 million, or $0.19 per share, tax benefit recorded in the quarter.  

The reported prior year third quarter net loss of $995 million, or $2.63 per share, included $986 million, or $2.60 per share, in charges for goodwill impairment, insurance reserve adjustments and land-related charges, partially offset by a $29 million, or $0.08 per share, tax benefit recorded in the quarter.  

"I am pleased to report that PulteGroup's operations, excluding any impact from the goodwill impairment or tax gain in the quarter, returned to profitability for this quarter despite a housing demand environment that remains at historically low levels," said Richard J. Dugas, Jr., PulteGroup Chairman, President and Chief Executive Officer.  "Our results were achieved through a combination of higher closings, improved margins and reduced SG&A expenditures.  I am particularly pleased with the progress we continue to make in improving our homebuilding gross margin, along with the tangible results from our efforts to reduce the Company's cost structure and to more effectively allocate capital to projects that generate improved financial returns.  PulteGroup's Q3 results demonstrate further success in our efforts to better position our homebuilding operations for long-term profitability."

Third Quarter Results

Revenues from home sales (settlements) totaled $1.1 billion, an increase of 7% from prior year revenue of $1.0 billion. Higher revenues in the quarter were driven by a 9% increase in unit closing volumes to 4,198 homes, partially offset by a 1% decrease in the Company's average selling price to $262,000.

Third quarter cost of sales related to home sales totaled approximately $948 million, which included $1 million of land-related charges, compared with $953 million in the prior year, which included $57 million of land-related charges.  Excluding land-related charges, interest expense and merger-related costs, adjusted home sale gross margin for the third quarter 2011 was 18.5%. This represents an increase of 180 basis points over the prior year and a sequential increase of 130 basis points from the second quarter 2011.

Homebuilding selling, general and administrative (SG&A) expense for the quarter was $117 million, or 10.6% of home sale revenues, compared with $145 million, or 14.1%, in the prior year excluding an insurance reserve adjustment taken in the period.  Lower SG&A expense in the quarter reflects actions taken by the Company in prior periods to consolidate operations and reduce related overhead expenditures.  

PulteGroup recorded a non-cash, goodwill impairment charge of $241 million, or $0.63 per share in the third quarter.  "During the quarter, the Company was required to assess the carrying value of its goodwill due to the decrease in the Company's stock price and associated market capitalization during the third quarter," said Robert O'Shaughnessy, Executive Vice President and Chief Financial Officer.  "Based on the results of this assessment, which takes into account the decrease in the Company's market capitalization, it was determined that an impairment charge for all of the remaining goodwill was necessary."

Net new home orders for the third quarter were 3,564 homes, flat with the prior year. PulteGroup's quarter-end backlog was 5,143 homes valued at $1.4 billion, compared with prior year backlog of 5,345 homes valued at $1.4 billion.

The Company's financial services operations reported third quarter pretax income of $9 million, compared with prior year pretax income of $3 million. Mortgage capture rate for the quarter was 78%, which was unchanged from the comparable quarter last year.

The Company ended the third quarter with a cash balance of $1.3 billion, including restricted cash.

Nine Month Results

For the nine months ended September 30, 2011, PulteGroup reported a net loss of $224 million, or $0.59 per share, inclusive of $271 million, or $0.71 per share, of goodwill impairment, land and mortgage charges, partially offset by $77 million, or $0.20 per share, of tax benefits.  For the comparable prior year period, the Company reported a net loss of $931 million, or $2.46 per share, inclusive of $1.1 billion, or $2.80 per share, of goodwill impairment, insurance, land and mortgage charges, partially offset by tax benefits of $113 million, or $0.30 per share.

Revenues from home sales for the period were $2.8 billion, compared with prior year revenues of $3.3 billion.  Lower revenues for the period were driven by a 14% decrease in the number of homes closed combined with a 1% decrease in average selling price to $254,000.  The year-over-year decrease in closings reflects the pull ahead of demand created by the 2010 tax credit and a lower community count.

A conference call discussing PulteGroup's third quarter 2011 results is scheduled for Thursday, October 27, 2011, at 8:30 a.m. Eastern Time.  Interested investors can access the live webcast via PulteGroup's corporate website at www.pultegroupinc.com.

Forward-Looking Statements

This press release includes "forward-looking statements." These statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or implied by, these statements. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "may," "can," "could," "might," "will" and similar expressions identify forward-looking statements, including statements related to expected operating and performing results, planned transactions, planned objectives of management, future developments or conditions in the industries in which we participate and other trends, developments and uncertainties that may affect our business in the future.

Such risks, uncertainties and other factors include, among other things: interest rate changes and the availability of mortgage financing; continued volatility in the debt and equity markets; competition within the industries in which PulteGroup operates; the availability and cost of land and other raw materials used by PulteGroup in its homebuilding operations; the impact of any changes to our strategy in responding to continuing adverse conditions in the industry, including any changes regarding our land positions; the availability and cost of insurance covering risks associated with PulteGroup's businesses; shortages and the cost of labor; weather related slowdowns; slow growth initiatives and/or local building moratoria; governmental regulation directed at or affecting the housing market, the homebuilding industry or construction activities; uncertainty in the mortgage lending industry, including revisions to underwriting standards and repurchase requirements associated with the sale of mortgage loans; the interpretation of or changes to tax, labor and environmental laws; economic changes nationally or in PulteGroup's local markets, including inflation, deflation, changes in consumer confidence and preferences and the state of the market for homes in general; legal or regulatory proceedings or claims; required accounting changes; terrorist acts and other acts of war; and other factors of national, regional and global scale, including those of a political, economic, business and competitive nature. See PulteGroup's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and other public filings with the Securities and Exchange Commission (the "SEC") for a further discussion of these and other risks and uncertainties applicable to our businesses.  PulteGroup undertakes no duty to update any forward-looking statement, whether as a result of new information, future events or changes in PulteGroup's expectations.

About PulteGroup

PulteGroup, Inc. (NYSE: PHM), based in Bloomfield Hills, Mich., is one of America's largest home building companies with operations in approximately 60 markets throughout the country. Through its brand portfolio that includes Centex, Pulte Homes and Del Webb, the company is one of the industry's most versatile homebuilders able to meet the needs of multiple buyer groups and respond to changing consumer demand. PulteGroup conducts extensive research to provide home buyers with innovative solutions and new homes designed for the way people actually live today. As the most awarded home builder in customer satisfaction, PulteGroup brands have consistently ranked among top home builders in third-party customer satisfaction studies.

For more information about PulteGroup, Inc. and PulteGroup brands, see www.pultegroup.com; www.pulte.com; www.centex.com; www.delwebb.com

PulteGroup, Inc.

Consolidated Results of Operations

($000's omitted, except per share data)

(Unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2011


2010


2011


2010

Revenues:








Homebuilding








Home sale revenues

$ 1,101,368


$ 1,024,847


$ 2,783,602


$ 3,264,643

Land sale revenues

12,659


5,908


19,023


25,639


1,114,027


1,030,755


2,802,625


3,290,282

Financial Services

27,904


27,009


71,720


93,738

Total revenues

1,141,931


1,057,764


2,874,345


3,384,020









Homebuilding Cost of Revenues:








Home sale cost of revenues

947,817


952,788


2,422,525


2,907,339

Land sale cost of revenues

(2,935)


4,849


1,782


16,410


944,882


957,637


2,424,307


2,923,749









Financial Services expenses

19,249


23,450


78,775


93,333

Selling, general, and administrative expenses

121,610


425,643


402,436


744,364

Other expense (income), net

259,187


672,979


274,765


673,772

Interest income

(1,122)


(2,601)


(3,704)


(7,672)

Interest expense

322


789


990


2,289

Equity in (earnings) loss of unconsolidated entities

303


3,704


(1,999)


(1,744)

Income (loss) before income taxes

(202,500)


(1,023,837)


(301,225)


(1,044,071)

Income tax expense (benefit)

(73,202)


(28,721)


(77,016)


(112,770)

Net income (loss)

$  (129,298)


$  (995,116)


$  (224,209)


$  (931,301)









Per share data:








Net income (loss):








Basic

$        (0.34)


$        (2.63)


$        (0.59)


$        (2.46)

Diluted

$        (0.34)


$        (2.63)


$        (0.59)


$        (2.46)

Cash dividends declared

$              -


$              -


$              -


$              -









Number of shares used in calculation:








Basic

380,025


378,842


379,785


378,406

Diluted

380,025


378,842


379,785


378,406



PulteGroup, Inc.

Condensed Consolidated Balance Sheets

($000's omitted)

(Unaudited)






September 30,


December 31,


2011


2010





ASSETS





Cash and equivalents

$    1,142,513


$   1,470,625

Restricted cash

113,296


24,601

Unfunded settlements

16,529


12,765

House and land inventory

4,889,668


4,781,813

Land held for sale

134,563


71,055

Land, not owned, under option agreements

25,422


50,781

Residential mortgage loans available-for-sale

173,956


176,164

Investments in unconsolidated entities

37,184


46,313

Goodwill

-


240,541

Intangible assets, net

165,623


175,448

Other assets

450,522


567,963

Income taxes receivable

79,378


81,307






$    7,228,654


$   7,699,376









LIABILITIES AND SHAREHOLDERS' EQUITY





Liabilities:




Accounts payable

$       224,956


$      226,466

Customer deposits

78,435


51,727

Accrued and other liabilities

1,445,305


1,599,940

Income tax liabilities

221,128


294,408

Senior notes

3,335,363


3,391,668





Total liabilities

5,305,187


5,564,209









Shareholders' equity

1,923,467


2,135,167






$    7,228,654


$   7,699,376



PulteGroup, Inc.

Consolidating Statements of Cash Flows

($000's omitted)

(Unaudited)






For The Nine Months Ended


September 30,


2011


2010

Cash flows from operating activities:




Net income (loss)

$  (224,209)


$  (931,301)

Adjustments to reconcile net income (loss) to net cash provided by




(used in) operating activities:




Write-down of land and deposits and pre-acquisition costs

11,419


92,549

Goodwill impairments

240,541


656,298

Amortization and depreciation

24,629


34,930

Stock-based compensation expense

14,444


27,480

Equity in (earnings) loss of unconsolidated entities

(1,999)


(1,744)

Distributions of earnings from unconsolidated entities

5,042


3,531

Loss on debt repurchases

3,537


-

Other, net

2,741


5,659

Increase (decrease) in cash due to:




Restricted cash

690


(586)

Inventories

(174,231)


(65,622)

Residential mortgage loans available-for-sale

2,182


13,409

Income taxes receivable

1,929


818,003

Other assets

102,509


78,618

Accounts payable, accrued and other liabilities

(99,674)


109,971

Income tax liabilities

(73,280)


(42,609)

Net cash provided by (used in) operating activities

(163,730)


798,586

Cash flows from investing activities:




Distributions from unconsolidated entities

4,388


3,893

Investments in unconsolidated entities

(3,749)


(22,666)

Net change in loans held for investment

449


9,898

Change in restricted cash related to letters of credit

(89,385)


-

Proceeds from the sale of fixed assets

9,449


1,240

Capital expenditures

(15,162)


(11,647)

Net cash provided by (used in) investing activities

(94,010)


(19,282)

Cash flows from financing activities:




Net repayments (borrowings) under Financial Services credit arrangements

-


(18,394)

Repayments of other borrowings

(68,351)


(1,415)

Issuance of common stock

-


8,668

Stock repurchases

(2,021)


(3,115)

Net cash provided by (used in) financing activities

(70,372)


(14,256)

Net increase (decrease) in cash and equivalents

(328,112)


765,048

Cash and equivalents at beginning of period

1,470,625


1,858,234

Cash and equivalents at end of period

$ 1,142,513


$ 2,623,282





Supplemental Cash Flow Information:




Interest paid (capitalized), net

$    (29,457)


$    (12,871)

Income taxes paid (refunded), net

$      (5,665)


$  (884,602)



PulteGroup, Inc.

Segment Data

($000's omitted)

(Unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2011


2010


2011


2010

HOMEBUILDING:








Home sale revenues

$ 1,101,368


$  1,024,847


$ 2,783,602


$  3,264,643

Land sale revenues

12,659


5,908


19,023


25,639

Total Homebuilding revenues

1,114,027


1,030,755


2,802,625


3,290,282









Home sale cost of revenues

(947,817)


(952,788)


(2,422,525)


(2,907,339)

Land sale cost of revenues

2,935


(4,849)


(1,782)


(16,410)

Selling, general, and administrative expenses

(117,110)


(416,780)


(385,144)


(714,846)

Equity in earnings (loss) of unconsolidated entities

(331)


(3,608)


1,931


1,799

Other income (expense), net

(259,187)


(672,979)


(271,228)


(673,772)

Income (loss) before income taxes

$  (207,483)


$ (1,020,249)


$  (276,123)


$ (1,020,286)









FINANCIAL SERVICES:








Income (loss) before income taxes

$        8,683


$         3,463


$      (6,987)


$            350









OTHER NON-OPERATING:








Net interest income

$           800


$         1,812


$        2,714


$         5,383

Selling, general, and administrative expenses

(4,500)


(8,863)


(17,292)


(29,518)

Other income (expense), net

-


-


(3,537)


-

Income (loss) before income taxes

$      (3,700)


$        (7,051)


$    (18,115)


$      (24,135)



PulteGroup, Inc.

Segment Data, continued

($000's omitted)

(Unaudited)












Three Months Ended


Nine Months Ended



September 30,


September 30,



2011


2010


2011


2010











Home sale revenues

$ 1,101,368


$ 1,024,847


$ 2,783,602


$ 3,264,643











Unit settlements:









East

1,259


1,106


3,263


3,823


Gulf Coast

1,584


1,324


4,160


4,341


West

1,355


1,435


3,549


4,526



4,198


3,865


10,972


12,690


Average selling price

$           262


$           265


$           254


$           257











Net new orders: (a)









East

1,015


1,048


3,486


3,442


Gulf Coast

1,254


1,297


4,525


4,157


West

1,295


1,221


4,120


4,505



3,564


3,566


12,131


12,104


Net new orders - dollars (a)(b)

$    916,552


$    894,126


$ 3,125,675


$ 3,133,036
















As of







September 30,







2011


2010


Unit backlog:









East





1,510


1,687


Gulf Coast





1,834


1,897


West





1,799


1,761







5,143


5,345


Dollars in backlog





$ 1,398,636


$ 1,445,817



















(a)

During the first quarter of 2010, we revised our criteria for recognizing new orders to include the additional requirement of customer preliminary loan approval. This change resulted in a reduction of approximately 450 units and $110.0 million in our reported net new orders and backlog in the first quarter of 2010.  We reversed this methodology in the fourth quarter of 2010 as the revised process was not providing a significant benefit for either our operations or our customers.

(b)

Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.



PulteGroup, Inc.

Segment Data, continued

($000's omitted)

(Unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2011


2010


2011


2010

MORTGAGE ORIGINATIONS:








Origination volume

2,585


2,385


6,667


7,953

Origination principal

$ 549,859


$ 508,528


$ 1,363,752


$ 1,673,601

Capture rate percentage

78%


78%


77%


77%





















Supplemental Information

($000's omitted)

(Unaudited)


















Three Months Ended


Nine Months Ended


September 30,


September 30,


2011


2010


2011


2010









Interest in inventory, beginning of period

$ 358,806


$ 310,622


$    323,379


$    239,365

Interest capitalized

55,230


67,794


167,367


203,979

Interest expensed

(48,693)


(48,501)


(125,403)


(113,429)

Interest in inventory, end of period

$ 365,343


$ 329,915


$    365,343


$    329,915

Interest incurred

$   55,230


$   68,740


$    167,367


$    205,473



PulteGroup, Inc.

Reconciliation of Non-GAAP Financial Measures


This report contains information about our home sale gross margins and Homebuilding selling, general, and administrative expenses ("SG&A") reflecting certain adjustments.  These measures are considered non-GAAP financial measures under the SEC's rules and should be considered in addition to, rather than as a substitute for, the comparable GAAP financial measures as measures of our operating performance.  Management and our local divisions use these measures in evaluating the operating performance of each community and in making strategic decisions regarding sales pricing, construction and development pace, product mix, and other daily operating decisions.  We believe they are relevant and useful measures to investors for evaluating our performance through (1) gross profit generated on homes delivered during a given period and (2) the efficiency of our overhead cost structure and for comparing our operating performance to other companies in the homebuilding industry.  Although other companies in the homebuilding industry report similar information, the methods used may differ.  We urge investors to understand the methods used by other companies in the homebuilding industry to calculate gross margins and Homebuilding SG&A and any adjustments thereto before comparing our measures to that of such other companies.


The following tables set forth reconciliations of these non-GAAP financial measures to the GAAP financial measures that management believes to be most directly comparable ($000's omitted):















Home Sale Gross Margin














Three Months Ended




September 30,
2011


June 30,
2011


March 31,
2011


December 31,
2010


September 30,
2010














Home sale revenues


$       1,101,368


$          899,763


$          782,471


$       1,155,169


$       1,024,847


Home sale cost of revenues


(947,817)


(789,678)


(685,030)


(1,099,046)


(952,788)


Home sale gross margin


153,551


110,085


97,441


56,123


72,059


Add:












Impairments (a)


526


2,046


41


67,880


49,838


Capitalized interest amortization (a)


48,693


41,894


34,816


67,489


48,501


Merger-related costs (b)


591


366


280


282


893


Adjusted home sale gross margin


$          203,361


$          154,391


$          132,578


$          191,774


$          171,291














Home sale gross margin as a percentage












of home sale revenues


13.9%


12.2%


12.5%


4.9%


7.0%














Home sale gross margin before interest












expense as a percentage of home sale












revenues


18.4%


16.9%


16.9%


10.7%


11.8%














Adjusted home sale gross margin as a












percentage of home sale revenues


18.5%


17.2%


16.9%


16.6%


16.7%

























(a)

Write-offs of capitalized interest related to impairments are reflected in capitalized interest amortization.

(b)

Home sale gross margin was adversely impacted by the amortization of a fair value adjustment to homes under construction inventory acquired with the Centex merger. This fair value adjustment is being amortized as an increase to cost of sales over the related home closings.



PulteGroup, Inc.

Reconciliation of Non-GAAP Financial Measures, continued

($000's omitted)












Homebuilding SG&A












Three Months Ended


Nine Months Ended




September 30,


September 30,




2011


2010


2011


2010












Home sale revenues


$ 1,101,368


$ 1,024,847


$ 2,783,602


$ 3,264,643












Homebuilding SG&A


117,110


416,780


385,144


714,846


Less:  Insurance reserve adjustments (a)


-


(272,211)


-


(291,803)












Homebuilding SG&A excluding insurance










reserve adjustments


$    117,110


$    144,569


$    385,144


$    423,043












Homebuilding SG&A as a percentage of










home sale revenues


10.6%


40.7%


13.8%


21.9%












Homebuilding SG&A excluding insurance










reserve adjustments as a percentage of










home sale revenues


10.6%


14.1%


13.8%


13.0%











(a)

Adjustments to recorded insurance reserves, primarily related to general liability exposures.



SOURCE PulteGroup, Inc.



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