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Press release from PR Newswire

PulteGroup Reports Third Quarter 2011 Financial Results

Thursday, October 27, 2011

PulteGroup Reports Third Quarter 2011 Financial Results06:30 EDT Thursday, October 27, 2011BLOOMFIELD 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 2011Reported 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 RevenuesNet New Orders of 3,564 Homes, Flat with Prior Year on 4% Fewer CommunitiesQuarter-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 ResultsRevenues 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 ResultsFor 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 StatementsThis 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.comPulteGroup, Inc.Consolidated Results of Operations($000's omitted, except per share data)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201020112010Revenues:HomebuildingHome sale revenues$ 1,101,368$ 1,024,847$ 2,783,602$ 3,264,643Land sale revenues12,6595,90819,02325,6391,114,0271,030,7552,802,6253,290,282Financial Services27,90427,00971,72093,738Total revenues1,141,9311,057,7642,874,3453,384,020Homebuilding Cost of Revenues:Home sale cost of revenues947,817952,7882,422,5252,907,339Land sale cost of revenues(2,935)4,8491,78216,410944,882957,6372,424,3072,923,749Financial Services expenses19,24923,45078,77593,333Selling, general, and administrative expenses121,610425,643402,436744,364Other expense (income), net259,187672,979274,765673,772Interest income(1,122)(2,601)(3,704)(7,672)Interest expense3227899902,289Equity in (earnings) loss of unconsolidated entities3033,704(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:Basic380,025378,842379,785378,406Diluted380,025378,842379,785378,406PulteGroup, Inc.Condensed Consolidated Balance Sheets($000's omitted)(Unaudited)September 30,December 31,20112010ASSETSCash and equivalents$    1,142,513$   1,470,625Restricted cash113,29624,601Unfunded settlements16,52912,765House and land inventory4,889,6684,781,813Land held for sale134,56371,055Land, not owned, under option agreements25,42250,781Residential mortgage loans available-for-sale173,956176,164Investments in unconsolidated entities37,18446,313Goodwill-240,541Intangible assets, net165,623175,448Other assets450,522567,963Income taxes receivable79,37881,307$    7,228,654$   7,699,376LIABILITIES AND SHAREHOLDERS' EQUITYLiabilities:Accounts payable$       224,956$      226,466Customer deposits78,43551,727Accrued and other liabilities1,445,3051,599,940Income tax liabilities221,128294,408Senior notes3,335,3633,391,668Total liabilities5,305,1875,564,209Shareholders' equity1,923,4672,135,167$    7,228,654$   7,699,376PulteGroup, Inc.Consolidating Statements of Cash Flows($000's omitted)(Unaudited)For The Nine Months EndedSeptember 30,20112010Cash flows from operating activities:Net income (loss)$  (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 costs11,41992,549Goodwill impairments240,541656,298Amortization and depreciation24,62934,930Stock-based compensation expense14,44427,480Equity in (earnings) loss of unconsolidated entities(1,999)(1,744)Distributions of earnings from unconsolidated entities5,0423,531Loss on debt repurchases3,537-Other, net2,7415,659Increase (decrease) in cash due to:Restricted cash690(586)Inventories(174,231)(65,622)Residential mortgage loans available-for-sale2,18213,409Income taxes receivable1,929818,003Other assets102,50978,618Accounts payable, accrued and other liabilities(99,674)109,971Income tax liabilities(73,280)(42,609)Net cash provided by (used in) operating activities(163,730)798,586Cash flows from investing activities:Distributions from unconsolidated entities4,3883,893Investments in unconsolidated entities(3,749)(22,666)Net change in loans held for investment4499,898Change in restricted cash related to letters of credit(89,385)-Proceeds from the sale of fixed assets9,4491,240Capital 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-8,668Stock 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)765,048Cash and equivalents at beginning of period1,470,6251,858,234Cash and equivalents at end of period$ 1,142,513$ 2,623,282Supplemental Cash Flow Information:Interest paid (capitalized), net$    (29,457)$    (12,871)Income taxes paid (refunded), net$      (5,665)$  (884,602)PulteGroup, Inc.Segment Data($000's omitted)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201020112010HOMEBUILDING:Home sale revenues$ 1,101,368$  1,024,847$ 2,783,602$  3,264,643Land sale revenues12,6595,90819,02325,639Total Homebuilding revenues1,114,0271,030,7552,802,6253,290,282Home 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)1,9311,799Other 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)$            350OTHER NON-OPERATING:Net interest income$           800$         1,812$        2,714$         5,383Selling, 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($000's omitted)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201020112010Home sale revenues$ 1,101,368$ 1,024,847$ 2,783,602$ 3,264,643Unit settlements:East1,2591,1063,2633,823Gulf Coast1,5841,3244,1604,341West1,3551,4353,5494,5264,1983,86510,97212,690Average selling price$           262$           265$           254$           257Net new orders: (a)East1,0151,0483,4863,442Gulf Coast1,2541,2974,5254,157West1,2951,2214,1204,5053,5643,56612,13112,104Net new orders - dollars (a)(b)$    916,552$    894,126$ 3,125,675$ 3,133,036As ofSeptember 30,20112010Unit backlog:East1,5101,687Gulf Coast1,8341,897West1,7991,7615,1435,345Dollars 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($000's omitted)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201020112010MORTGAGE ORIGINATIONS:Origination volume2,5852,3856,6677,953Origination principal$ 549,859$ 508,528$ 1,363,752$ 1,673,601Capture rate percentage78%78%77%77%Supplemental Information($000's omitted)(Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2011201020112010Interest in inventory, beginning of period$ 358,806$ 310,622$    323,379$    239,365Interest capitalized55,23067,794167,367203,979Interest expensed(48,693)(48,501)(125,403)(113,429)Interest in inventory, end of period$ 365,343$ 329,915$    365,343$    329,915Interest incurred$   55,230$   68,740$    167,367$    205,473PulteGroup, Inc.Reconciliation of Non-GAAP Financial MeasuresThis 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 ($000's omitted):Home Sale Gross MarginThree Months EndedSeptember 30,2011June 30,2011March 31,2011December 31,2010September 30,2010Home sale revenues$       1,101,368$          899,763$          782,471$       1,155,169$       1,024,847Home sale cost of revenues(947,817)(789,678)(685,030)(1,099,046)(952,788)Home sale gross margin153,551110,08597,44156,12372,059Add:Impairments (a)5262,0464167,88049,838Capitalized interest amortization (a)48,69341,89434,81667,48948,501Merger-related costs (b)591366280282893Adjusted home sale gross margin$          203,361$          154,391$          132,578$          191,774$          171,291Home sale gross margin as a percentageof home sale revenues13.9%12.2%12.5%4.9%7.0%Home sale gross margin before interestexpense as a percentage of home sale revenues18.4%16.9%16.9%10.7%11.8%Adjusted home sale gross margin as a percentage of home sale revenues18.5%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($000's omitted)Homebuilding SG&AThree Months EndedNine Months EndedSeptember 30,September 30,2011201020112010Home sale revenues$ 1,101,368$ 1,024,847$ 2,783,602$ 3,264,643Homebuilding SG&A117,110416,780385,144714,846Less:  Insurance reserve adjustments (a)-(272,211)-(291,803)Homebuilding SG&A excluding insurance reserve adjustments$    117,110$    144,569$    385,144$    423,043Homebuilding SG&A as a percentage ofhome sale revenues10.6%40.7%13.8%21.9%Homebuilding SG&A excluding insurancereserve adjustments as a percentage of home sale revenues10.6%14.1%13.8%13.0%(a)Adjustments to recorded insurance reserves, primarily related to general liability exposures.SOURCE PulteGroup, Inc.For further information: Jim Zeumer, +1-248-433-4502, jim.zeumer@pultegroup.com