PulteGroup, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. PulteGroup is a U.S. homebuilder with mortgage, title, and insurance brokerage operations. Homebuilding generated 97% of consolidated revenue. The audited financial statements received an unqualified opinion.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Consolidated revenue | $11.04 billion | $10.21 billion |
| Income before tax | $1.73 billion | $1.34 billion |
| Net income | $1.41 billion | $1.02 billion |
| Diluted EPS | $5.18 | $3.66 |
| Operating cash flow | $1.78 billion | $1.08 billion |
| Cash, cash equivalents and restricted cash at year-end | $2.63 billion | $1.25 billion |
| Notes payable | $2.75 billion | $2.77 billion |
- Homebuilding revenue rose 7% to $10.67 billion. Closings increased 6% to 24,624 and average selling price rose 1% to $430,000.
- Home-sale gross margin increased to 24.3% from 23.1%; SG&A fell to 9.6% of home-sale revenue from 10.5%.
- Financial Services revenue increased 54% to $362.2 million and pretax income rose 81% to $186.6 million. Mortgage capture rate increased to 86.4% from 82.4%.
- Net new orders increased 17% to 29,275 homes. Year-end backlog rose 44% to 15,158 homes, valued at $6.79 billion, up 50%. Substantially all backlog orders were scheduled to close in 2021, but remain subject to cancellation or final negotiation.
- Year-end debt-to-total capitalization, excluding Financial Services debt, was 29.5%, below the company’s stated long-term target range of 30%–40%. Available liquidity was approximately $3.4 billion: $2.6 billion of cash and equivalents and $750.3 million of unused revolving capacity.
- FY2020 diluted EPS includes an 18.6% effective tax rate, versus 24.1% in 2019; the lower rate primarily reflected extended federal energy-efficient home tax credits.
Fourth quarter: Revenue was $3.19 billion, pretax income $523.8 million, net income $438.1 million, and diluted EPS $1.62, compared with $3.02 billion, $436.0 million, $335.8 million, and $1.22, respectively, in 2019.
Material changes and unusual items
- Demand weakened sharply in late March and April amid COVID-19 restrictions, then rebounded from May and remained strong. Full-year net orders increased despite the disruption; the annual cancellation rate was 14%, unchanged from 2019, and was 12% in the fourth quarter.
- Homebuilding pretax income increased 25%, supported by higher revenue, stronger gross margin, and overhead management. Results included a $20.2 million goodwill impairment related to the ICG acquisition and net favorable insurance-related adjustments of $75.7 million, compared with $26.8 million in 2019.
- Financial Services results benefited from higher volume, mortgage capture, and mortgage-sale gains in a low-rate environment, partly offset by $26.4 million of mortgage repurchase reserve charges.
- Land-related charges declined to $20.3 million from $27.1 million. The company repurchased 4.5 million shares for $170.7 million, paid $135.1 million in declared dividends, and raised its quarterly dividend 17% to $0.14 in the fourth quarter.
- Operating cash flow increased year over year. Investing cash outflow was $107.9 million, including $83.3 million paid for the ICG acquisition; financing cash outflow was $295.6 million.
Outlook, risks and contingencies
- No quantified full-year 2021 revenue, earnings, or margin guidance is provided. Management described demand and the outlook as favorable, planned increased land acquisition and development investment, and expected to offset the majority of labor and materials cost increases through pricing. Production delays and supply constraints could challenge that expectation.
- Management reported operations functioning at effectively full capacity subject to COVID-19 safety measures. Risks include renewed restrictions, economic or consumer-confidence deterioration, higher mortgage rates or tighter credit, and potential backlog cancellations.
- Skilled-labor and materials constraints, particularly lumber, have increased costs and lengthened production cycles. Fixed-price customer contracts can limit the ability to pass later cost increases through.
- Self-insured claims reserves were $641.8 million; management’s estimated reasonably possible loss range was $550 million–$750 million. The estimate is sensitive to long-tail construction-defect claims and actuarial assumptions. Insurance receivables were $69.5 million.
- Other exposures include land-value impairments or option cancellations, mortgage-loan repurchase claims, regulatory and environmental requirements, and ordinary-course litigation. Management did not expect pending legal matters to have a material adverse impact, but noted actual losses could exceed recorded estimates.
- The company had $425.954 million of senior notes scheduled to mature in March 2021. It announced a tender offer for up to $300 million of notes due in 2026 and 2027, expected to be completed in 2021. The mortgage repurchase facility, with $411.8 million outstanding at year-end, matured in July 2021.
Important facts for investors to verify
- Whether strong orders and the $6.79 billion backlog convert to completed closings and revenue, including cancellation trends and delivery timing.
- Whether pricing can offset labor, lumber, and other input-cost inflation without weakening demand or margins.
- The assumptions and subsequent development of the $641.8 million self-insurance reserve, related insurance recoveries, and mortgage repurchase exposures.
- Execution and funding of the 2021 note maturity and announced tender offer, and the company’s liquidity and leverage after shareholder returns and land investment.
- The continuation of favorable mortgage availability, low interest rates, and demand conditions that supported 2020 results; the filing provides no numerical 2021 earnings guidance.