The paragraph is an introduction to the PulteGroup Fourth Quarter 2024 Earnings Conference Call. The operator, Kelvin, introduces the event and explains that participants are in listen-only mode until the Q&A session. Robert O'Shaughnessy, the outgoing CFO, introduces the call alongside Ryan Marshall, the President and CEO, and Jim Ossowski, the incoming CFO. The discussion will cover the company's fourth quarter and full year financial results, and related materials are available on the company's website. He notes that the presentation will include forward-looking statements with potential risks, detailed in their SEC filings. Ryan Marshall expresses enthusiasm about discussing the company's 2024 achievements before detailed financial data is presented.

In 2024, PulteGroup delivered 31,219 homes, a 9% increase from the previous year, generating record home sale revenues of $17.3 billion with a gross margin of 28.9%. Despite affordability challenges, the company managed product offerings, pricing, and overheads efficiently, with SG&A at 7.6% of home sale revenues. Financial services pre-tax income rose to $210 million, contributing to a 21.3% net operating margin. The company generated $1.7 billion in cash flow from operations after investing $5.3 billion in new land, controlling 235,000 lots. It returned $1.7 billion to investors through share repurchases, dividends, and early debt retirement. Overall, PulteGroup's disciplined business practices ensured financial strength and adaptability amid market turbulence.

The company concluded the year with $1.7 billion in cash and a gross debt-to-capital ratio of 11.8%, while receiving multiple culture-related awards, including making Fortune's Top 100 Best Companies to Work For in 2024. Looking ahead, the company is optimistic about the long-term outlook for new home construction due to strong employment, high demand for new homes, and a structural housing shortage. It plans to continue investing in its operations and align its construction starts with market demand. Despite potential fluctuations in home delivery volumes, the company is focused on growth and maintaining high returns. It anticipates strong cash flow to support business investments, dividends, and share buybacks, with the board approving a $1.5 billion increase for share repurchases.

The paragraph discusses the current and future outlook of the housing market and company performance. Despite optimism about housing demand due to potential decreases in interest rates and a stable economy, challenges like affordability and high living costs are affecting consumers. Recent mortgage rate increases have lowered homebuying activity. The company is managing its production and inventory levels to ensure high returns, aiming for a certain percentage of speculative inventory. Bob then reviews the company's fourth-quarter financials, noting an increase in home sale revenues to $4.7 billion from the previous year due to more closings and a higher average sales price. The mix of homebuyers included a balance among first-time, move-up, and active adult buyers, with the latter expected to normalize by late 2025.

In the quarter, the average selling price increased due to a higher proportion of sales to move-up buyers. The community count rose by 4% to 960, aligning with prior guidance. Net new orders fell by 1% due to a 5% drop in sales per store and a slight rise in the cancellation rate, partly offset by more communities. Despite economic uncertainties and higher mortgage rates, demand showed a typical seasonal pattern. Challenges remain for first-time buyers due to affordability, with their orders down 14%, while move-up buyers saw a 15% increase, and active adult buyers a 1% decrease. The spring selling season is anticipated to better gauge housing demand amid these challenges.

The paragraph discusses the company's current sales and production status, noting a decrease in backlog and dollar value from the previous year. With 16,439 homes in production and 53% as spec homes, the company is prepared to meet buyer demand, though it will adjust spec starts and inventory levels if absorption rates drop. The goal is to reduce spec inventory to 40%-45% by year-end. They expect to close on 31,000 homes in 2025, with 6,400-6,800 in the first quarter, and aim for an average sales price of $560,000-$570,000 in the fourth quarters. Gross margins have decreased slightly but are within expectations, with buyer incentives contributing to the margin decline. Expected margins for 2025 are around 27% in Q1 and 26.5%-27% for the rest of the year, assuming consistent incentives.

The article discusses the company's financial performance and projections. It highlights that future margins will be influenced by demand conditions, as they have many homes to sell throughout the year. The fourth quarter reported SG&A expense was $196 million, significantly lower than the previous year's $308 million, due to notable pre-tax insurance benefits. Anticipated SG&A expense for 2025 is projected at 9.5% of home sale revenues. The company's financial services operations saw a rise in pre-tax income to $51 million from $44 million. Overall, the reported pre-tax income for the fourth quarter increased to $1.2 billion from $947 million, with a tax expense of $269 million and an effective tax rate of 22.8%. The fourth quarter net income was $913 million, or $4.43 per share, up from the previous year's $711 million, or $3.28 per share. The expected tax rate for 2025 is approximately 24.5%, barring any discrete tax events.

The paragraph outlines the company's financial and investment activities. In 2024, the company generated $1.7 billion in cash flows from operations and expects $1.4 billion in 2025. They invested $1.5 billion in land acquisition and development in the fourth quarter, with a total land investment of $5.3 billion for the year. The company plans to invest $5.5 billion in land in 2025, focusing 55% on development. They aim to adjust land purchase strategies based on market absorption rates to ensure high returns. Their controlled lots increased, with a higher percentage under auction. They anticipate a 3% to 5% increase in average community count each quarter in 2025, reflecting their capital allocation strategies.

The company returned significant capital to investors in the fourth quarter, repurchasing 2.5 million shares for $320 million, and throughout 2024, returned a total of $1.7 billion to investors through share repurchases, dividends, and early retirement of senior notes. This resulted in a reduced debt-to-capital ratio of 11.8% by year-end. With ample cash flow, the company is now net debt-free and no longer targets a specific leverage level but will continue capital allocation strategies prioritizing business investment, dividends, and share repurchases or debt retirement. The company's leverage will depend on strategic decisions, and they anticipate flat or declining leverage unless an opportunity arises. The Board has also approved a 10% dividend increase starting in 2025.

The paragraph discusses PulteGroup's strategic focus and achievements in the face of recent challenges such as interest rate variability, weather events, and geopolitical issues. Ryan Marshall highlights the company's disciplined land investment strategy and operational expertise, which have led to significant financial successes, including a 30% compound annual growth rate in earnings per share and a 27.8% average annual return on equity over the past five years. He emphasizes their continued commitment to strong returns through market cycles, investment in high-quality land to support long-term growth, and maintaining flexibility to adapt to market changes. The company is also prepared to meet near-term demand by ensuring adequate inventory and planned start activity for its communities.

The paragraph discusses the company's strategy to adjust pricing and inventory to align with norms, focusing on business growth, ROE, cash flow, and a low-risk profile for shareholder returns. It announces the upcoming retirement of CFO Bob after the 10-K filing, who will transition to a new role to ensure a smooth handover and oversee growth initiatives. Bob is thanked for his 14 years of service. Jim Ossowski, with 22 years at Pulte and experience in various leadership roles, is introduced as the new CFO.

The paragraph discusses the confidence in Jim's ability to transition into the CFO role due to his strong understanding of the homebuilding business and established relationships with the team and service providers. It expresses gratitude to the employees for their ongoing efforts in delivering quality homes and financial returns. The call is then opened for questions, with a request to limit questions to one per person for efficiency. John Lovallo from UBS asks about the gross margin projections from the fourth quarter to the first quarter and the rest of the year, mentioning factors like spec inventory, incentives, product mix, and cost inflation. Ryan Marshall responds, noting satisfaction with fourth-quarter order results, which aligned with expected seasonal patterns.

The paragraph discusses the seasonal selling patterns and upcoming spring selling season, noting positive order activity and optimism for sales as the official season starts in February. It addresses the company's Q1 margin guide, setting a target of 27% and a range of 26.5% to 27% for the year, based on current backlog and expected sales, including anticipated discounts. It mentions the assumption that incentives will remain consistent with the fourth quarter. Robert O'Shaughnessy adds that while pricing is expected to stay flat, land costs have increased by about 10% year-over-year, contributing to the overall cost increase.

In the paragraph, John Lovallo asks Ryan Marshall if the historical 40% positive sequential absorption in the first quarter is a reasonable expectation for the upcoming spring selling season. Ryan Marshall responds that no guidance has been provided but expresses optimism about current trends. Carl Reichardt congratulates Bob on his retirement and welcomes Jim. He inquires about differences in incentives across various buyer segments, such as move-up, active adult, and first-time buyers. Robert O'Shaughnessy explains that first-time buyers often receive more significant incentives due to their focus on monthly payments, particularly with government loans. Move-up buyers have different incentives based on their needs, while active adult buyers, often requiring little or no mortgage, receive varying incentive packages, consistent with historical trends.

The paragraph discusses a conversation between Carl Reichardt and Ryan Marshall about the interest in mergers and acquisitions (M&A) for business growth. Carl mentions recent public to private movements and questions whether these are opportunities worth considering given the stock value and long-term growth goals. Ryan responds by stating that their view on M&A is unchanged, preferring organic growth while remaining open to opportunities. They evaluated over 20 potential acquisitions last year but didn't proceed with any due to their selective and disciplined approach. The priority remains disciplined underwriting of their land, which contributes to their strong return on equity (ROE) performance.

In the paragraph, Ryan Marshall discusses the impact of active adult communities on gross margins, expecting significant benefits mostly in 2026 as new communities begin sales towards the end of the current year. He refrains from providing a long-term margin outlook due to various influencing factors. Stephen Kim notes that the company plans to adjust volume based on demand, which may offer more margin stability compared to competitors. Kim also raises concerns about potential labor disruptions in the construction industry due to possible ICE enforcement actions and supply shocks, questioning how the company is preparing for such scenarios.

The paragraph discusses the potential advantages of speculative (spec) building during supply shocks and inflation, as it allows builders to avoid early price locking and associated risks. Despite planning to reduce spec activity, Ryan Marshall acknowledges that spec building can be beneficial in such environments, as seen post-COVID. He also addresses labor concerns due to potential deportation activities, emphasizing the company's stance on verified residency for workers and the potential impact on wage rates. The company is currently operating a mix of built-to-order and low to medium level spec building.

The paragraph discusses the company's strategy and future projections. They aim to optimize their consumer and brand mix with a target range of 40% to 45%, which allows benefits from built-to-order margins and active adult buyers personalizing homes while maintaining some speculative construction for first-time buyers. Currently at 53%, they expect to adjust towards the historical range. Alan Ratner poses a question about maintaining flat closings amid competitive discounting, and Ryan Marshall responds by affirming their long-term 5% to 10% growth target, highlighting the importance of investing in land and communities. They experienced a 4% growth in community count and 9% volume deliveries in 2024 and, despite a pullback due to discounting, project flat volume growth with a 3% to 4% community count increase in 2025.

The article discusses the company's strategic positioning for long-term growth, emphasizing that it is focusing on optimizing land investments and maintaining a balance between pace and pricing to maximize return on invested capital. The company is cautious about offering discounts to increase volume, as it may not yield favorable returns. In 2025, the company aims to stick to its current business strategy. Alan Ratner raises a concern about the company's significant exposure in Florida, which makes up about a quarter of its business. He questions if the strong margins historically achieved there can be sustained amid challenges like building resale inventory, storms, and homeowner insurance issues. Ryan Marshall asserts that Florida remains a robust market due to the company's move-up and active adult, lifestyle-oriented communities across major cities in the state.

The paragraph discusses the importance of return on invested capital for investments, whether in Florida or Cleveland, Ohio. Despite challenges like storms, Florida remains attractive due to its benefits like jobs, no state income tax, and favorable climate. An insurance agency provides coverage for homeowners in Florida, where communities are designed to be less susceptible to storms. The company's current gross margin range is 26.5% to 27% for this year, but they focus on return rather than underwriting margins. They have not provided specific expectations for lot cost or construction material inflation for the year.

In the article's paragraph, Robert O’Shaughnessy mentions that the cost per square foot for building materials was around $82 in 2024, with expectations for minimal increases in 2025, barring any tariff impacts. Ryan Marshall discusses land costs, with Jim Ossowski indicating a projected 10% increase in land costs for this year, including raw land and developed lot costs. Michael Rehaut from JPMorgan asks about regional market trends. Ryan Marshall responds, highlighting strong performance in the Midwest and Northeast regions with fewer discounts compared to other areas. He notes that other regions have remained relatively flat year-over-year, with a slight decline in orders in Texas.

The paragraph discusses the impact of affordability concerns on first-time homebuyer business, particularly in Texas and Florida, where sign-ups have been flat. The company is seeing some positive signs from their sales floor as they look toward the spring selling season. Michael Rehaut asks about the company's leverage strategy and the potential for share repurchases in 2025. He notes that leverage appears to be decreasing, which could allow for increased share repurchase activity without compromising financial stability. Robert O'Shaughnessy acknowledges the question, suggesting it's reasonable to consider such possibilities while maintaining flexibility for other transactions.

The company has been disciplined and consistent in its financial approach over the last 15 years, particularly in handling equity and debt. They took significant actions in 2016-17 by buying a lot of stock but have since been using cash to repurchase stock or pay down debt. The management does not anticipate a change in leverage unless they undertake a tender offer, which they have done in the past. Even though the company could handle more leverage, their decisions have led them to maintain lower levels. They are not providing guidance on share repurchase activities but remain open to doing so in the future. Recently, they announced a $1.5 billion increase in authorization, reflecting their consistent track record and desire to continue these financial strategies.

The paragraph discusses a strategy for managing housing inventory and production rates. Ryan Marshall mentions that the company has already reduced the rate at which they start new housing projects, beginning in the fourth quarter, to better align with sales conditions. They remain optimistic about the spring selling season and have intentionally maintained slightly higher inventory levels to meet potential demand. Despite some increased inventory, it is still below normal levels in most markets, except for a few specific areas. The company believes demand for housing remains strong due to a healthy economy and job market.

The paragraph discusses the challenges and expectations regarding cycle times and inventory in the housing market. Trevor Allinson and others express optimism about spring and mention a goal of reducing cycle times to under 100 days by early 2025, despite some divisions building projects that take longer. Ryan Marshall highlights that single-family and townhome builds are already achieving shorter cycle times. A question is raised by Matthew Bouley about the balance between pricing strategies and incentives for moving spec inventory, considering the uptick in finished inventory. The discussion includes whether housing demand's seasonality will negate the need for higher incentives.

In the paragraph, Ryan Marshall discusses the company's confidence in their sales and margin guidance for Q1, despite the heavier incentive load in Q3 and Q4. They attribute this confidence to a combination of factors, including a healthy economy and the spring selling season. Matthew Bouley asks about maintaining flat gross margins in the face of increased costs for land and construction. Marshall explains that a 3% increase in Average Selling Price (ASP) should offset these cost increases, which would help in maintaining the margins. Rafe Jadrosich inquires about regional differences in incentives, but Marshall does not provide specific details at that level.

The paragraph discusses the dynamics of incentives in various housing markets without providing regional specifics. Rafe Jadrosich inquires about current and future land cost inflation and how it affects development plans. Ryan Marshall responds, stating that their company manages over 85% of its own development and is consistently purchasing land, often experiencing stable prices despite market variations. He notes some wage pressures in horizontal development and anticipates a 10% inflation rate primarily due to previously contracted raw land prices. The discussion concludes with Robert O'Shaughnessy wrapping up the call.

The operator concludes the conference call and thanks the participants, requesting them to disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.