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Pulte Group 10Q Summary of First Quarter 2020

Pulte Group (PHM) announced its first-quarter earnings of 2020 on April 23, 2020. The following report will be present a summary of those results; there will be no opinion offered on those results, just the facts reported in the company 10Q.

Overview of Financial Results

  • Pulte Group reported the first-quarter net income of $0.74 per share.
  • Closings increased to 5,373 homes, an 16% increase.
  • An increase of 30 basis points to 23.7% in Home Sale Gross Margins.
  • An increase in Net New Orders of 16% to 7,495 homes with Net New Order Value increasing 19% to $3.3 Billion.
  • Unit backlog grew 20% to 12,629 homes, with backlog value increasing 21% to $5.6 Billion.
  • Pulte maintains fantastic liquidity and strength in its balance sheet.

Selected Financial Ratios at Quarter End 2020

  • Market Cap – $9.61 Billion
  • Enterprise Value – $11.15 Billion
  • P/E Ratio TTM – 9.42
  • P/B – 1.76
  • Dividend Per Share – $0.12
  • Return on Equity – 14.70%
  • Return on Assets – 7.36%
  • Return on Invested Capital – 11.70%
  • Debt to Equity – 0.67

First Quarter 2020 Financial Highlights

For the quarter ending on March 31, 2020, Pulte Group reported a net income of $204 million, with $0.74 per share. An increase over the prior year of 2019 results in net income of $167 million and per share of $0.59.

First-quarter home sales revenues increased by 14% to $2.2 billion; the revenue increase was driven by an increase in the number of homes closed to the tune of 16% with 5,373 homes sold. The decrease in price per home offset the revenue increase sold, dropping to $413,000. The lower average sale price reflects changes in products and geographic mix of homes sold during the quarter compared to the year-ago quarter of 2019. Also, first-time closings increased 55% compared to the first quarter of 2019, and the first-time closings accounted for 33% of the first-quarter closings.

In the first quarter of 2020, Pulte Group invested $619 million in land acquisition and development. First-quarter land acquisitions of $219 million was a decrease from $305 million in the prior-year quarter. There were also developments to defer pending land purchases to preserve liquidity. Pulte Group currently holds 160,000 lots, with 42% of those lots held via the option, and 35% of lots under control targeted for first-time buyers.

Gross profit from home sales in the quarter grew to $527 million, or 2.3% of home sales revenue. Compared to the year-ago first-quarter gross profit of $457 million, or 23.4% of home sales revenues.

SG&A expenses for the quarter were $264 million, or 11.9% of home sales revenue. Compared to the year-ago first quarter SG&A expenses of $253 million, or 13% of home sales revenue. The operating margin grew for the quarter 130 basis points to 11.8%.

Pulte Group saw net new orders for the first quarter grow 16% to 7,495 homes, with the value of those orders growing 19% to $3.3 billion. For the first-quarter, Pulte Group operated from an average of 873 communities, which was an increase of 4% over the year-ago quarter level of 843 communities in 2019.

Pulte Group’s backlog increased at quarter-end by 20%, with a total of 12,629 homes. The backlog value of homes increased 6.1% to $5.6 billion, with the average backlog price increasing 4,000, or 1% over the prior year to $442,000.

The financial services operations of Pulte Group generated a pretax income of $20 million, an increase of pretax income over the last year’s quarter of $12 million. Pulte Group’s mortgage capture rate was 87% for the quarter, which was an increase over the reported 80% of last year’s quarter.

Liquidity Update

Pulte Group ended the quarter with $1.9 billion in cash, which includes $700 million from the company’s decision to draw down on its credit facility in March of the current year.

Pulte Group executed 2.8 million of common share repurchases during the first quarter of 2020 for a total of $96 million, which works out to a share price of $33.86.

According to Bob O’Shaughnessy, Executive Vice President, and CFO:

While our strong business results have allowed us to maintain an elevated cash position, we elected to draw on our revolving credit agreement in an abundance of caution due to the dramatic impact and broad economic 3 uncertainties the COVID-19 pandemic has created. “Further, given the economic uncertainties, we have also elected to suspend all stock repurchase activities.”

Dividends per share of $0.12 were reported for the quarter with no news of a suspension of the dividend at the time of this report. Pulte Group has a dividend yield of 1.34%, with a payout ratio of 12%, and the dividend has grown over the last five years at an 11.4% clip.

Valuation

For Pulte Group, I will put together a discounted cash flow to give you an idea of a price range the company might trade. The valuation is not meant to be a price point to make a purchase but rather a guide to give you an idea of the value based on the current financials. I will also provide some of the inputs I am basing on the valuation.

Assuming:

Growth Rate of Net Income of 8%

Discount Rate of

Terminal Growth Rate of 2%

Assuming different discount rates, keeping the growth rate and terminal rate static, we get:

7% – $62.36

9% – $41.98

Final Thoughts

That is going to wrap up our summary of the first quarter results for Pulte Group. I hope you enjoyed the summary, and you find something that can help you in your investment journey.

The above summary and valuation are not meant for investment advice and guidance, rather as a tool to understand the company and the possible value of the company. Before making any investment, please do your due diligence and investigations.