PulteGroup, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. PulteGroup builds homes across six U.S. regions and operates mortgage, title, and insurance businesses.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $3.188 billion | $2.730 billion | +17% |
| Net income | $454.7 million | $304.1 million | +50% |
| Diluted EPS | $1.83 | $1.13 | +62% |
| Operating cash flow | $207.7 million | $176.7 million | +$31.0 million |
| Homebuilding income before taxes | $559.3 million | $327.7 million | +71% |
| Financial Services income before taxes | $40.6 million | $66.3 million | -39% |
- Home sale revenue rose 18% to $3.070 billion, primarily as average selling price increased 18% to $508,000. Closings were essentially flat at 6,039.
- Home sale gross margin expanded to 29.0% from 25.5%. SG&A rose 21% to $329.0 million; SG&A was 10.7% of home sale revenue versus 10.5%.
- Net new orders fell 19% to 7,971 units, reflecting a 7% lower average community count and deliberate moderation of sales pace. Backlog increased 5% in units and 31% in dollars to 19,935 homes and $11.520 billion.
- Financial Services revenue declined 21% to $84.1 million. Mortgage revenue fell 29%; the capture rate decreased to 81.0% from 88.3%, amid increased lender competition and lower revenue per loan.
- Operating cash flow included a $814.8 million inventory investment, partly offset by a $436.9 million seasonal decline in mortgage loans held for sale. Investing cash use was $48.0 million; financing cash use was $781.4 million, including $500.0 million of share repurchases.
- At March 31, cash and equivalents were $1.145 billion and restricted cash was $66.9 million, compared with combined cash of $1.834 billion at year-end. House and land inventory was $9.870 billion, up from $9.048 billion.
- Notes payable were $2.030 billion and Financial Services debt was $396.1 million. The company had no revolver borrowings and $710.1 million of unused availability net of letters of credit; debt-to-capitalization excluding Financial Services debt was 21.5%.
Changes, outlook, and risks
- Compared with Q1 2021, stronger home prices and gross margins drove homebuilding earnings growth. The prior-year comparison also included a $61.5 million loss on debt retirement, which did not recur in Q1 2022.
- Management described housing demand as strong but affordability as increasingly pressured by inflation and rising mortgage rates. The company said it was raising prices to offset most cost increases, while moderating lot releases and sales pace to balance demand with production capacity and protect margins.
- Construction cycles were approximately eight weeks longer than a year earlier, due to material and labor constraints and delays in municipal approvals and inspections. Management expected these industry conditions to continue through the remainder of 2022 and anticipated active communities would begin increasing during 2022.
- No specific earnings or revenue guidance was provided. Management said existing cash, financing resources, and operating activities should be sufficient to fund needs over the next 12 months and beyond.
- Risks include further increases in mortgage rates and housing costs, inflation, supply-chain and labor disruptions, volatile lumber and other material costs, COVID-19 and geopolitical uncertainty, and possible delays or added costs in land development. The company noted that rising costs and extended production times could affect affordability, sales, cash needs, and margins.
- Near-term financing items include the Pulte Mortgage repurchase agreement, with $396.1 million outstanding and a July 2022 maturity, and the $1.0 billion revolving facility maturing in June 2023. The company said it believed it could renew or replace the mortgage facility but gave no assurance.
- Contingencies include $1.9 billion of surety bonds and $289.9 million of letters of credit; management did not expect a material amount to be drawn. Legal matters were not expected to have a material adverse impact, but outcomes remain uncertain. Self-insured claim reserves were $644.3 million, and actual construction-defect costs could differ materially from estimates.
- The company repurchased 10.3 million shares for $500.0 million and declared $36.5 million in dividends. It had $957.6 million remaining under its repurchase authorization. Effective tax rate increased to 24.2% from 22.8%, partly because federal energy-efficient home credits expired after 2021.
Important facts for investors to verify
- Whether order trends, cancellations, backlog conversion, and community count support continued homebuilding growth as mortgage rates and affordability pressures rise.
- Whether pricing continues to offset labor, land, and material inflation without weakening demand or gross margins.
- Whether construction cycle times and supply constraints improve, and how inventory growth affects cash generation and working capital.
- Renewal or refinancing terms for the Pulte Mortgage repurchase agreement before its July 2022 maturity, and the company’s plans for the June 2023 revolver maturity.
- Development of self-insured claims, warranty liabilities, land-option commitments, and other contingencies, which involve estimates and uncertain outcomes.