PulteGroup, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Amounts below are in U.S. dollars. PulteGroup is a U.S. homebuilder with mortgage, title, and insurance brokerage operations.
Financial performance
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $2.730 billion | $2.295 billion; up 19% |
| Homebuilding revenue | $2.624 billion | $2.240 billion; up 17% |
| Financial Services revenue | $106.1 million | $54.6 million; up 95% |
| Income before taxes | $394.1 million | $263.8 million |
| Net income | $304.1 million | $203.7 million |
| Diluted EPS | $1.13 | $0.74 |
| Home-sale gross margin | 25.5% | 23.7%; up 180 basis points |
| SG&A as a share of home-sale revenue | 10.5% | 11.9% |
| Operating cash flow | $176.7 million | $204.6 million |
Home closings increased 12% to 6,044 and average selling price rose 4% to $430,000. Net new orders increased 31% to 9,852 homes; ending backlog rose 50% to 18,966 homes, valued at $8.827 billion. The cancellation rate declined to 8% from 13%.
Cash, debt, and capital
- Cash, cash equivalents, and restricted cash totaled $1.644 billion at quarter-end, including $1.580 billion of unrestricted cash. The company also reported $764.3 million available under its revolving credit facility, with no revolver borrowings outstanding.
- Notes payable were $2.032 billion, down from $2.752 billion at December 31, 2020; Financial Services debt was $270.8 million, down from $411.8 million. Debt-to-capitalization, excluding Financial Services debt, was 23.3%, versus 29.5% at year-end.
- Operating cash flow was lower year over year, in part because inventory increased $243.9 million. Investing activities used $27.6 million; financing activities used $1.137 billion, including $794.4 million of debt repayments and $153.7 million of share repurchases.
- The company declared $37.3 million in dividends and repurchased 3.3 million shares. The board approved an additional $1.0 billion share repurchase authorization on April 26, 2021.
Changes and unusual items
- Pre-tax income increased, supported by higher closings, improved home-sale margins, and overhead leverage. Financial Services pre-tax income rose to $66.3 million from $19.6 million, reflecting higher volumes, mortgage capture, and margin per loan.
- Q1 2021 included a $61.5 million loss on early retirement of $300 million of 2026 and 2027 notes. The company also retired $426 million of notes due in March 2021. The prior-year quarter included a $20.2 million goodwill impairment charge related to Innovative Construction Group.
- The effective tax rate was 22.8% in both periods. Cash dividends declared were $0.14 per share, compared with $0.12 in Q1 2020.
Outlook, management commentary, and risks
Management reported strong housing demand, citing low mortgage rates, limited new and existing home supply, and buyer preferences for homeownership and single-family living. It said operations were functioning at effectively full capacity and expressed optimism about future demand and business growth. The filing provides no specific numerical earnings or revenue guidance.
Demand and orders were outpacing closings, while material and labor availability and delays in municipal approvals and inspections lengthened production cycles. Management noted elevated lumber and other input costs, but said pricing actions had offset the majority of cost increases to date. Risks include further cost inflation, higher mortgage rates affecting affordability, supply-chain and labor constraints, COVID-19 uncertainty, land availability and cost, and regulatory or legal matters. Results are seasonal and Q1 performance may not indicate full-year results.
- Land option agreements had $4.305 billion of remaining purchase commitments and $319.8 million of deposits and pre-acquisition costs at March 31, 2021; maximum exposure is generally limited to those deposits and costs.
- Outstanding letters of credit were $235.7 million and surety bonds were approximately $1.6 billion. The company did not expect a material amount, if any, to be drawn.
- Recorded general liability reserves were $653.1 million, including estimates for claims incurred but not reported; actual claim costs could differ significantly. Management did not believe pending litigation and regulatory matters would have a material adverse impact, while noting outcomes are uncertain.
Important facts for investors to verify
- Whether the large order backlog converts into closings as production capacity, labor and materials availability, and permitting timelines evolve.
- Whether pricing continues to offset lumber, labor, land, and other cost pressures without weakening demand or margins.
- Whether strong Q1 Financial Services revenue and margins persist as mortgage volumes, capture rates, and refinancing conditions change.
- How cash use, debt reduction, and the new share repurchase authorization affect liquidity and capital allocation.
- Whether warranty, construction-defect, insurance, land-option, and surety exposures develop differently from current estimates.