PulteGroup, Inc. (NYSE:PHM) on Tuesday reported net income was $77 million, or $0.26 per share, for its fourth quarter ended December 31, 2017. Adjusted net income for the period was $253 million, or $0.85 per share, after excluding a $66 million pre-tax benefit associated with insurance related adjustments, a $57 million pre-tax charge relating to land adjustments, and $181 million of income tax charges primarily relating to the revaluation of the company’s deferred tax assets following newly enacted federal tax legislation. Analysts were expecting a gain of $0.85 per share.
Reported net income for the prior year fourth quarter was $273 million, or $0.83 per share. Adjusted net income for the prior year fourth quarter was $223 million, or $0.67 per share, after excluding $0.16 per share of insurance and income tax benefits.
Home sale revenue for the fourth quarter increased 12% over the prior year to $2.7 billion. Higher revenues for the period were driven by a 7% increase in closings to 6,632 homes, combined with a 5%, or $19,000, increase in average sales price to $410,000.
The company’s fourth quarter adjusted home sale gross margin, which excludes the $57 million land charge, was 23.8%. Inclusive of this charge, the company’s reported gross margin for the fourth quarter was 21.6%. Prior year adjusted and reported gross margins were 24.9% and 24.8%, respectively.
Fourth-quarter adjusted home building SG&A expense, which excludes the $66 million insurance-related benefit, was $268 million, or 9.8% of home sale revenues.
The value of fourth quarter net new orders increased 22% over the prior year to $2.0 billion, while the number of orders increased 14% to 4,805 homes. For the fourth quarter, the company operated out of 790 communities, up 9% over the fourth quarter of 2016.
Backlog value at the end of the fourth quarter was $4.0 billion, up 35% over the prior year and the highest year-end backlog in over a decade. On a unit basis, backlog for the quarter was up 21% over last year to 8,996 homes. The average price of homes in backlog increased 12% over the prior year to $442,000.
The company’s financial services operations reported fourth quarter pre-tax income of $23 million compared with $25 million in the prior year. The decrease in pre-tax income was primarily the result of a more competitive operating environment which impacted pricing during the period. Mortgage capture rate for the quarter was 81%, compared with 82% in the prior year.
For the quarter, the company’s adjusted income tax expense, which excludes the $181 million income tax charge relating primarily to the revaluation of its deferred tax assets resulting from the Tax Cuts and Jobs Act enacted in December 2017, was $147 million. The company’s adjusted effective tax rate for the fourth quarter was 36.8%.
During the quarter, the Company repurchased 7.6 million common shares for $251 million, or an average price of $33.09 per share. For the year, the Company repurchased a total of 35.4 million common shares, or 11% of its outstanding shares, for $910 million, or an average price of $25.70 per share. The Company also used available cash to retire $123 million of notes that matured in the fourth quarter.
In a separate press release issued today, the company announced that its Board of Directors approved an increase to its existing share repurchase plan of $500 million. As of December 31, 2017, the Company had $94 million of authorization remaining in its share repurchase plan. The company expects that share repurchases will be made from time to time in the open market, through privately negotiated transactions or otherwise subject to market conditions, applicable legal requirements, and other relevant factors.
“Reflecting the continued strength of housing demand, the value of new orders in the quarter increased 22% over the prior year, helping to grow our year-end backlog to a 12-year high of $4.0 billion,” said Ryan Marshall, President and CEO of PulteGroup. “Consistent with our strategic objectives, we leveraged a 12% increase in quarterly revenues into a 27% increase in adjusted earnings per share.”
“Ongoing gains in profitability and cash flow generation, which allowed us to reinvest in our business while repurchasing 11% of our outstanding common shares in 2017, also gave our Board the confidence to announce today a $500 million increase to our share repurchase plan,” added Marshall. “Given expectations for further expansion in the economy, along with ongoing gains in employment and buyer demand, we remain highly constructive on the industry. With our large backlog and robust land pipeline, we are well positioned to continue growing our business and building even greater value for our shareholders.”
