PHM PulteGroup Inc

• Reported Net Income Per Share of $1.12 Reflects Favorable Impact of Insurance Adjustments, Land Sale Gains and Lower Tax Rate
• Revenue Growth and Operational Gains Drive 89% Year-Over-Year Increase in Adjusted Net Income Per Share to $0.89
• Home Sale Revenues Increased 25% to $2.5 Billion
• Reported Gross Margin Increased to 24.0%
• Reported Operating Margin of 14.8%; Adjusted Operating Margin Increased 180 Basis Points Over Prior Year to 13.2%
• Value of Net New Orders Increased 3% to $2.7 Billion; Net New Orders Decreased 1% to 6,341 Homes
• Backlog Value Increased 17% to $5.2 Billion; Backlog Increased 11% to 11,845 Homes

PulteGroup, Inc. (NYSE: PHM) announced today financial results for its second quarter ended June 30, 2018. For the quarter, the Company’s reported net income was $324 million, or $1.12 per share. Adjusted net income for the period was $259 million, or $0.89 per share, after excluding $38 million of pretax benefit associated with insurance reserve adjustments, $26 million of pretax land-sale gains, and $17 million of net tax benefits recorded during the period.

Reported net income for the prior year second quarter was $101 million, or $0.32 per share. Adjusted net income for the prior year period was $148 million, or $0.47 per share, after excluding $121 million of pretax charges associated with the decision to dispose of select non-core land assets, $8 million of net pretax benefit relating to warranty and insurance reserve adjustments, and $24 million of net tax benefits recorded during the period.

“Working against our defined strategic plan, our operating teams continue to do an outstanding job as revenues increased 25%, adjusted gross margin increased 60 basis points, and adjusted EPS surged 89%,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup. “Given the operating and financial gains we have realized through the first half of 2018, and with almost 12,000 homes in backlog, we are well positioned to deliver outstanding full-year results.”

“We continue to see U.S. housing demand being supported by a number of positive market dynamics including an expanding economy, ongoing growth in jobs and wages, historically low unemployment, and sustained high levels of consumer confidence,” added Mr. Marshall. “With our strong land pipeline and ability to serve all primary buyer groups, we believe PulteGroup is well positioned to grow its business within this market environment, while continuing to generate high financial returns.”

Second Quarter Results

Home sale revenues for the second quarter increased 25% over the prior year to $2.5 billion. The increase in revenues for the period was driven by a 14% increase in deliveries to 5,741 homes, combined with a 10% increase in average sales price to $427,000.

Reported gross margin for the second quarter was 24.0%, which is 60 basis points higher than second quarter 2017 adjusted gross margin of 23.4%. Prior year adjusted gross margin excludes the impact of the land-related and warranty charges recorded in the period.

Reported SG&A expense for the second quarter of $226 million, or 9.2% of home sale revenues, includes the $38 million benefit relating to an insurance reserve adjustment recorded in the period. Exclusive of this benefit, adjusted SG&A expense for the quarter was $264 million, or 10.8% of home sale revenues. Adjusted SG&A expense for the prior year was $236 million, or 12.0% of home sale revenues, which excludes a $20 million benefit relating to an insurance reserve adjustment recorded in the period.

In the quarter, the Company recorded land sales gains totaling $27.3 million relating primarily to the sale of two land parcels that were completed in the period.

Net new orders for the second quarter declined less than 1.0% from the prior year to 6,341 homes. The dollar value of net new orders increased 3% to $2.7 billion. For the quarter, the Company operated out of 847 communities.

PulteGroup’s unit backlog increased 11% over the prior year to 11,845 homes. The value of homes in backlog increased 17% to $5.2 billion. The average sales price of homes in backlog is $439,000, which is 5% higher than last year’s average sales price in backlog.

Second quarter pretax income for the Company's financial services operations increased 9% over the prior year to $21 million. Financial services benefitted from higher homebuilder closing volumes and an increase in the average loan size. Mortgage capture rate for the quarter was 76%, compared with 79% in the prior year.

For the quarter, the Company reported $85 million of income tax expense, representing an effective tax rate of 20.8%. The Company’s tax rate for the quarter included the net benefit of $17 million of tax adjustments recorded in the period. Excluding this benefit, the Company’s effective tax rate would have been approximately 25%.

During the quarter, PulteGroup repurchased 1.7 million common shares for $53 million, or an average price of $30.07 per share.

A conference call discussing PulteGroup's second quarter 2018 results is scheduled for Thursday, July 26, 2018, at 8:00 a.m. Eastern Time. Interested investors can access the live webcast via PulteGroup's corporate website at www.pultegroupinc.com.

Forward-Looking Statements

This 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,” “plan,” “project,” “may,” “can,” “could,” “might,” "should", “will” and similar expressions identify forward-looking statements, including statements related to any impairment charge and the impacts or effects thereof, 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; competition within the industries in which we operate; the availability and cost of land and other raw materials used by us in our homebuilding operations; the impact of any changes to our strategy in responding to the cyclical nature of the industry, including any changes regarding our land positions and the levels of our land spend; the availability and cost of insurance covering risks associated with our 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, including, but not limited to the Tax Cuts and Jobs Act which could have a greater impact on our effective tax rate or the value of our deferred tax assets than we anticipate; economic changes nationally or in our 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; our ability to generate sufficient cash flow in order to successfully implement our capital allocation priorities; 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, 2017, 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 Atlanta, Georgia, is one of America's largest homebuilding companies with operations in approximately 50 markets throughout the country. Through its brand portfolio that includes Centex, Pulte Homes, Del Webb, DiVosta Homes and John Wieland Homes and Neighborhoods, 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 homebuyers with innovative solutions and consumer inspired homes and communities to make lives better.

For more information about PulteGroup, Inc. and PulteGroup brands, go to www.pultegroupinc.com; www.pulte.com; www.centex.com; www.delwebb.com; www.divosta.com and www.jwhomes.com.

  PulteGroup, Inc.

Consolidated Results of Operations

($000's omitted, except per share data)

(Unaudited)

        Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017 Revenues: Homebuilding Home sale revenues $ 2,450,054 $ 1,965,641 $ 4,361,652 $ 3,551,063 Land sale and other revenues 66,904   8,944   79,461   11,632   2,516,958 1,974,585 4,441,113 3,562,695 Financial Services 52,764   47,275   98,702   89,042   Total revenues 2,569,722   2,021,860   4,539,815   3,651,737     Homebuilding Cost of Revenues: Home sale cost of revenues (1,862,133 ) (1,549,937 ) (3,322,073 ) (2,767,615 ) Land sale cost of revenues (38,183 ) (87,599 ) (49,731 ) (90,827 ) (1,900,316 ) (1,637,536 ) (3,371,804 ) (2,858,442 )   Financial Services expenses (32,224 ) (28,478 ) (64,436 ) (56,846 ) Selling, general, and administrative expenses (226,056 ) (216,211 ) (466,950 ) (452,479 ) Other expense, net (1,956 ) (17,088 ) (3,263 ) (22,157 ) Income before income taxes 409,170 122,547 633,362 261,813 Income tax expense (85,081 ) (21,798 ) (138,521 ) (69,545 ) Net income $ 324,089   $ 100,749   $ 494,841   $ 192,268     Per share: Basic earnings $ 1.12   $ 0.32   $ 1.72   $ 0.60   Diluted earnings $ 1.12   $ 0.32   $ 1.71   $ 0.60   Cash dividends declared $ 0.09   $ 0.09   $ 0.18   $ 0.18     Number of shares used in calculation: Basic 285,276 312,315 285,976 315,021 Effect of dilutive securities 1,378   1,565   1,088   1,946   Diluted 286,654   313,880   287,064   316,967       PulteGroup, Inc.

Condensed Consolidated Balance Sheets

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(Unaudited)

  June 30, 2018   December 31, 2017   ASSETS   Cash and equivalents $ 367,091 $ 272,683 Restricted cash 34,824   33,485 Total cash, cash equivalents, and restricted cash 401,915 306,168 House and land inventory 7,499,665 7,147,130 Land held for sale 77,941 68,384 Residential mortgage loans available-for-sale 369,634 570,600 Investments in unconsolidated entities 61,718 62,957 Other assets 759,230 745,123 Intangible assets 134,092 140,992 Deferred tax assets, net 511,381   645,295 $ 9,815,576   $ 9,686,649   LIABILITIES AND SHAREHOLDERS’ EQUITY   Liabilities: Accounts payable $ 399,330 $ 393,815 Customer deposits 354,968 250,779 Accrued and other liabilities 1,242,349 1,356,333 Income tax liabilities 22,484 86,925 Financial Services debt 264,043 437,804 Notes payable 3,005,690   3,006,967 5,288,864 5,532,623 Shareholders' equity 4,526,712   4,154,026 $ 9,815,576   $ 9,686,649     PulteGroup, Inc.

Consolidated Statements of Cash Flows

($000's omitted)

(Unaudited)

  Six Months Ended June 30, 2018   2017 Cash flows from operating activities: Net income $ 494,841 $ 192,268 Adjustments to reconcile net income to net cash from operating activities: Deferred income tax expense 126,991 80,841 Land-related charges 5,841 129,108 Depreciation and amortization 24,161 26,023 Share-based compensation expense 16,162 20,871 Other, net (2,803 ) (1,536 ) Increase (decrease) in cash due to: Inventories (281,362 ) (486,393 ) Residential mortgage loans available-for-sale 199,623 172,943 Other assets 15,822 15,309 Accounts payable, accrued and other liabilities (51,694 ) 26,892   Net cash provided by (used in) operating activities 547,582   176,326   Cash flows from investing activities: Capital expenditures (33,059 ) (16,892 ) Investments in unconsolidated entities (1,000 ) (17,832 ) Other investing activities, net 6,915   3,143   Net cash used in investing activities (27,144 ) (31,581 ) Cash flows from financing activities: Repayments of debt (82,432 ) (2,153 ) Borrowings under revolving credit facility 1,566,000 110,000 Repayments under revolving credit facility (1,566,000 ) (110,000 ) Financial Services borrowings (repayments) (173,761 ) (177,918 ) Debt issuance costs (8,090 ) — Stock option exercises 4,467 15,966 Share repurchases (112,491 ) (405,819 ) Dividends paid (52,384 ) (58,214 ) Net cash provided by (used in) financing activities (424,691 ) (628,138 ) Net increase (decrease) 95,747 (483,393 ) Cash, cash equivalents, and restricted cash at beginning of period 306,168   723,248   Cash, cash equivalents, and restricted cash at end of period $ 401,915   $ 239,855     Supplemental Cash Flow Information: Interest paid (capitalized), net $ (387 ) $ (2,359 ) Income taxes paid (refunded), net $ 77,077   $ (10,980 )     PulteGroup, Inc.

Segment Data

($000's omitted)

(Unaudited)

        Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017 HOMEBUILDING: Home sale revenues $ 2,450,054 $ 1,965,641 $ 4,361,652 $ 3,551,063 Land sale and other revenues 66,904   8,944   79,461   11,632   Total Homebuilding revenues 2,516,958 1,974,585 4,441,113 3,562,695   Home sale cost of revenues (1,862,133 ) (1,549,937 ) (3,322,073 ) (2,767,615 ) Land sale cost of revenues (38,183 ) (87,599 ) (49,731 ) (90,827 ) Selling, general, and administrative expenses ("SG&A") (226,056 ) (216,211 ) (466,950 ) (452,479 ) Other expense, net (2,133 ) (17,239 ) (3,548 ) (22,412 ) Income before income taxes $ 388,453   $ 103,599   $ 598,811   $ 229,362     FINANCIAL SERVICES: Income before income taxes $ 20,717   $ 18,948   $ 34,551   $ 32,451     CONSOLIDATED: Income before income taxes $ 409,170   $ 122,547   $ 633,362   $ 261,813       OPERATING METRICS: Gross margin % (a)(b) 24.0 % 21.1 % 23.8 % 22.1 % SG&A % (a) (9.2 )% (11.0 )% (10.7 )% (12.7 )% Operating margin % (a) 14.8 % 10.1 % 13.1 % 9.4 % (a) As a percentage of home sale revenues. (b) Gross margin equals home sale revenues minus home sale cost of revenues.     PulteGroup, Inc.

Segment Data, continued

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(Unaudited)

        Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017   Home sale revenues $ 2,450,054   $ 1,965,641   $ 4,361,652   $ 3,551,063   Closings - units Northeast 401 296 652 528 Southeast 1,072 949 1,996 1,785 Florida 1,134 910 2,021 1,742 Midwest 872 907 1,639 1,575 Texas 1,096 1,042 1,905 1,882 West 1,166   940   2,154   1,757 5,741   5,044   10,367   9,269 Average selling price $ 427   $ 390   $ 421   $ 383   Net new orders - units Northeast 450 376 898 787 Southeast 1,093 1,193 2,352 2,270 Florida 1,347 1,090 2,791 2,130 Midwest 1,055 1,089 2,157 2,251 Texas 1,183 1,189 2,506 2,400 West 1,213   1,458   2,512   2,683 6,341   6,395   13,216   12,521 Net new orders - dollars $ 2,694,271   $ 2,625,091   $ 5,587,823   $ 5,071,230   Unit backlog Northeast 758 646 Southeast 2,072 1,856 Florida 2,448 1,806 Midwest 2,005 1,983 Texas 2,027 1,930 West 2,535   2,453 11,845   10,674 Dollars in backlog $ 5,205,234   $ 4,461,680     PulteGroup, Inc.

Segment Data, continued

($000's omitted)

(Unaudited)

        Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017 MORTGAGE ORIGINATIONS: Origination volume 3,635   3,330   6,627   6,203   Origination principal $ 1,122,017   $ 969,691   $ 2,031,817   $ 1,776,043   Capture rate 75.8 % 78.9 % 76.6 % 79.5 %     Supplemental Data

($000's omitted)

(Unaudited)

        Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017   Interest in inventory, beginning of period $ 240,013 $ 203,828 $ 226,611 $ 186,097 Interest capitalized 43,771 44,949 87,731 89,872 Interest expensed (40,157 ) (35,927 ) (70,715 ) (63,119 ) Interest in inventory, end of period $ 243,627   $ 212,850   $ 243,627   $ 212,850    

PulteGroup, Inc.Reconciliation of Non-GAAP Financial Measures(Unaudited)

This report contains information about our operating results reflecting certain adjustments, including: adjustments to gross margin from home sales; selling general, and administrative expenses ("SG&A"); net income; and diluted earnings per share ("EPS"). 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 profitability. We believe that reflecting these adjustments provides investors relevant and useful information for evaluating the comparability of financial information presented and comparing our profitability 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 these measures and any adjustments thereto before comparing our measures to those of such other companies.

The following tables set forth a reconciliation of the non-GAAP financial measures to the GAAP financial measures that management believes to be most directly comparable ($000's omitted):

  Reconciliation of Adjusted Net Income and Adjusted EPS         Three Months Ended

Results of OperationsClassification

June 30, 2018 2017   Net income, as reported $ 324,089 $ 100,749 Adjustments to income before income taxes: Land and community valuation adjustments Home sale cost of revenues — 31,487 Warranty claim Home sale cost of revenues — 12,106 Net realizable value adjustments - land held for sale Land sale cost of revenues — 81,006 Land sale gains Land sale revenues /

cost of revenues

(26,402 ) — Insurance reserve reversal SG&A (37,890 ) (19,813 ) Impairments of joint ventures Other expense, net — 8,017 Income tax effect of the above items Income tax expense 16,086 (41,737 ) Net tax benefits Income tax expense (17,276 ) (23,808 ) Adjusted net income $ 258,607   $ 148,007     EPS (diluted), as reported $ 1.12 $ 0.32 Adjusted EPS (diluted) $ 0.89 $ 0.47     Other Reconciliations         Three Months Ended June 30, 2018 2017   Home sale revenues $ 2,450,054 $ 1,965,641   Gross margin from home sales, as reported $ 587,921 24.0 % $ 415,704 21.1 % Adjustments: Land and community valuation adjustments — — % 31,487 1.6 % Warranty claim —   — % 12,106   0.6 % Adjusted gross margin from home sales $ 587,921   24.0 % $ 459,297   23.4 %   SG&A, as reported $ 226,056 9.2 % $ 216,211 11.0 % Adjustments: Insurance reserve reversal 37,890   1.5 % 19,813   1.0 % Adjusted SG&A $ 263,946   10.8 % $ 236,024   12.0 %   Operating margin, as reported* 14.8 % 10.1 % Adjusted operating margin** 13.2 % 11.4 %   *Operating margin represents gross margin from home sales less SG&A

**Adjusted operating margin represents adjusted gross margin from home sales less adjusted SG&A

 

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PulteGroup, Inc.Jim Zeumer, 404-978-6434jim.zeumer@pultegroup.com