Key points from PulteGroup's 4Q and full-year 2013 earnings report (Part 1 of 5)
PulteGroup is the largest U.S. homebuilder by revenue
PulteGroup (PHM) is a Michigan-based homebuilder that was created by the merger of Pulte Homes and Centex. Pulte Homes concentrated on move-up buyers, while Centex focused on entry-level buyers. PulteGroup also has the Del Webb brand, which focuses on active adults. PulteGroup is therefore more diversifed than most other builders. It’s also a mortgage originator, and it provided mortgages to two-thirds of its buyers. Geographically, Pulte is pretty well diversified and has exposure to every major market in the country.
Pulte operates in 58 distinct markets throughout 28 states. As you can see from the attached map, the company has a large geographic footprint—much larger than most of the other builders. Pulte also has a finance operation that consists primarily of mortgage banking and title services.
Pulte targets three main segments
Pulte is a large diversified builder, but the company focuses on three distinct groups—the first-time homebuyer, the move-up buyer, and the active adult community. The move-up buyer has typically been around 40% of Pulte’s revenues, followed by the first-time buyer and then the active adult. Pulte noted on its call that the first-time homebuyer has still been missing from the market, so the company has focused more on the move-up buyer. This focus was evident in the big increase in average selling prices.
Pulte’s position in the homebuilder market
This makes them a similar comp to D.R. Horton (DHI), which also reported good earnings this week. Pulte doesn’t focus on the luxury end of the market like Toll Brothers (TOL), and it’s more geographically diversified than Standard Pacific (SPF).
Pulte has been a bit of a turnaround story
Starting in 2010, Pulte instituted a program to bring its metrics from the lower tier of its peers to the higher tier. The operational objectives were to:
- Increase inventory turnover
- Allocate capital using a risk-based approach
- Enhance revenue growth through strategic pricing
- Reduce costs and increase gross margins
- Reduce SG&A as a percent of revenues
PulteGroup reported a huge increase in gross margins this quarter, which speaks to the success of the company’s turnaround. It’s now in a good position to capitalize on growth going forward.
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