PulteGroup(PHM) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second quarter wholesale revenues increased by 3% to $2.5 billion, driven by a 6% increase in closings to 5,937 homes, partially offset by a 3% decrease in average sales price to $416,000 [21][30] - Reported net income for the second quarter was $349 million or $1.29 per share, while adjusted net income was $311 million or $1.15 per share, compared to $241 million or $0.86 per share in the prior year [30][31] - Gross margin for the quarter was 23.9%, an increase of 80 basis points over last year and a sequential gain of 20 basis points from the first quarter [26][30] Business Line Data and Key Metrics Changes - Closings for the quarter consisted of 31% first-time buyers, 44% move-up buyers, and 25% active adult buyers, compared to 28%, 46%, and 26% respectively in the prior year [22] - Net new orders totaled 6,522 homes, down 4% from last year, with first-time orders up 17% to 2,327 homes, move-up orders down 7% to 2,873 homes, and active adult orders down 22% to 1,322 homes [22][24] - The cancellation rate for the quarter was 19%, compared to 14% last year, with a notable decrease to 12% in June [24] Market Data and Key Metrics Changes - The total housing inventory at the end of May was 1.55 million units, down 19% from the prior year, contributing to strong demand for new homes [17] - The number of quick-move-in homes available for sale fell by 16% from the end of March through the end of June [17] - More than half of the divisions reported raising prices in 50% or more of their communities, with typical price increases ranging from 1% to 3% [18] Company Strategy and Development Direction - The company is increasing land acquisition and development spending, with a full-year investment expected to be approximately $2.7 billion [32] - The strategy includes a focus on first-time buyers, with 34% of the total lots controlled targeted for this segment, aiming for 35% of the business [66] - The company is committed to disciplined capital allocation, prioritizing investments in the business, paying dividends, and returning excess capital to shareholders [34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the rebound in housing demand, driven by historically low interest rates and increased consumer interest in home buying [15][33] - The ongoing impact of COVID-19 on the economy remains a concern, with management monitoring local conditions and potential impacts on demand [19][34] - The company is focused on maintaining a disciplined approach to managing operations amid the pandemic, ensuring safety protocols are in place [12][34] Other Important Information - The company ended the quarter with $1.7 billion in cash after repaying $700 million drawn from its revolving credit facility [31] - The debt-to-capital ratio was 32.1%, with a net debt to capital ratio of 15.5% [31] - The financial services segment generated $60 million in pre-tax income, a 141% increase over the prior year, driven by higher loan volumes and improved margins [29] Q&A Session Summary Question: How sustainable is the recent demand rebound? - Management is monitoring consumer behavior, job market conditions, and resale market dynamics to gauge sustainability [39] Question: What is the performance in the Vegas market? - The Vegas market has performed well, with a strong June following the reopening of casinos [42] Question: What are the current pricing strategies? - Pricing decisions are made on a community-by-community basis, considering local resale market conditions and competition [45] Question: How are COVID hotspots affecting demand? - Despite increased COVID cases, markets like Arizona, Texas, and Florida have shown strong sales performance [47] Question: How is the company managing production constraints? - Labor availability and municipal permitting processes are the primary constraints affecting production [57] Question: What is the outlook for land acquisition and development? - The land pipeline is healthy, with a focus on maintaining a balanced mix of owned and optioned lots [70]