PHM - Earnings call transcript Q2 2018

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Operator

Good day and welcome to the PulteGroup's Q2 2018 Quarterly Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jim Zeumer. Sir, please go ahead.

James P. Zeumer

Great. good and Katie you, morning. Thank welcome I'm quarter to second participants call. pleased to earnings PulteGroup's all

Joining Ryan Jim at corporate today earnings today's Vice President-Finance. me call are copy pultegroup.com. release President O'Shaughnessy, CEO; A posted slides and Executive and Bob have the CFO; that this been website and of Ossowski, presentation Vice Marshall, Senior morning's President accompanies and our to

of earnings today's later. will both call the release. We audio also included little quarter an website which in XXXX PulteGroup's and replay second items are in post XXXX a unusual the to several noted earnings

part well will as we comment exclude the results as financial results to adjusted reported these As our of of the on call, impact our items.

adjusted our posted results your information our review these our We morning's to numbers of to earnings QX to in results. and slides webcast have We in provided as the part call. this assist within this reported reconciliation you release of a encourage analysis of

are results filings including Before today's presentation over factors I our our earnings today. presentation as slides. significant detailed our that SEC future statements suggested risk PulteGroup's and about differ from remind are in could affect These forward-looking other performance. within annual the factors those The that quarterly future part to today's let risk and of summarized expected me made materially turn release by Ryan results includes accompanying key everyone could Marshall, comments the Actual most reports. call information and

over me Ryan? the call let Marshall. Ryan turn Now to

Ryan R. Marshall

to morning's discuss this joining results. excited thank PulteGroup's am Jim you quarter and Thanks everyone I us to outstanding second call.

earnings several of the course I the day. there As over know calls are

summarize a XX%. PulteGroup's QX our revenues year-over-year Let increased basis On quickly me homebuilding results.

Our adjusted XX gross increased points. basis by margin

basis most by Our points adjusted our per earnings increased margin by impressive, XX%. share adjusted and, XXX increased operating

and established operating practices. growth, line gains of our to improved business solid from continue execution top returns Our benefit

housing the core been constant. refined have While remained practices cycle as objectives the has these have advanced,

over the the $X acquiring disciplined fundamentals through First, in period business changed. investing over years we're new not four-and-a-half the Throughout in past projects, have fact land this assets. of our we've in practices underwriting invested high returning billion

on continue investing invested enhance faster our returns to on focus which remains to projects. focus returns, expanded under and achieving our emphasize Consistent position we turning are to in our up as option capital Our lot controlled mitigate on now smaller, we've also risks. XX% of lots high returns with

realize throughout homebuilding to continue we efficiencies our Second, operations.

industry. gross we're our the routinely including and product extensive We are operating margins proud core changing highest margins design research customer by of integration the maintained but in been the fact achieved processes that among business development. of chance, the This by and into hasn't

home home ahead practices quarter second management active our suit option plan is select that home during that Smart first Home. we allowing we these platform. testing while smart the their launched in field, plans innovative out Consistent buyers also Pulte help would Our highlight are adult build nationwide closings are PulteGroup premiums that our rolled new commonly seven of XX% we technology then floor through to innovative the common with maximize of of and the in I highlight plans market we I'd to ago rollout to builder our needs. built system plans. years that QX year. components national next our such offer technology floor Once our early best the finishing pricing lot their we the every use from higher that margin revenues. were new managed

capital their want our entire appliances. door locks, in and cooling, WiFi, allocating for the garage entertainment others alignment basic home to including with while even stated to they funds we're priorities doors, means returning which includes and control this heating shareholders. some, the some And company's third, For

by XXXX, capital XX% shareholders been have earnings $X on have equity returned returning of systematically billion repurchase return shares. excess Since we've program. almost and to and per approximately and PulteGroup's repurchased shareholders share to Our enhanced common our through share dividends

Of gains quarter. our get of the is efforts who words in highest second our buying all we hard quality Bob commitment even been practices business and we've want customers. minute. employees hard these deliver a as an news the the combination to day talented that on work and outstanding in home of the The tremendous work see paper course, realized without all have significant pursued to mortgage and initiatives thank would to better, The of I will most industry's with the to every of just homes good team. experience in to contributed the detail our certainly opportunities employees

the industry. our are financial take Given key and credit strength operating the for the on would several We our the metrics. to conditions unwise the our recognize strength and financial guidance that of of surround favorable us to business, we for gains. increasing of support macro be all It continue

labor dynamics you which obviously typically mortgage higher continued are real, certainly situation is rates in volatile. the has limited to number sustained been As has builders years been and for of housing raise but have as market and material seek concerns This to when include demand positive, increase. pass expect, would only costs. a and will supply, price ability affordability given especially through The prices

market increased the This to And exceptionally homes. To buyers new conversion strong communities, May. continues from a wage traffic contract the and to but homes first and continues and country traffic want value conditions modest good see increases, and below low affordability to and summarize, clearly as and little positive are websites which we quarter, the when low our time, on purchase. a to all see confidence, housing demand mortgage supply new rates same during that the serves buyers improved jobs for ongoing to remain run still positive matters. of The very demand. to estimated reminder their in in to remains benefit among for existing eased At as our consumer the a market, the particularly rates move-up of continue progressed, while We trends time quarter need. unemployment, rose high

presence, and Within broad these platform the geographic for strong operating product operating company conditions, offering has success. diversified our positioned well ongoing

outstanding let to the review for our Bob Now, turn call me of results. over a Bob? detailed QX

Robert T. O'Shaughnessy

performance company's represent Thanks, and good material quarter morning. another results Ryan and increases The year-over-year of gains. QX

quarter our and include As release, noted our unusual in items. for XXXX results several XXXX second

provide XX% adjusted Starting last a the X,XXX As time result, signups will we a buyer to numbers a understanding of our total of in homes. signups, I which as year. By was well X,XXX reported business comparable orders as performance. declined toward to the remained quarter move-up homes signups and clear reported first decreased lower to with rates quarter. orders The discuss orders the slowdown underlying group, with high by Traffic buyers first the Move-up active conversion time increased our adult quarter. communities X,XXX middle and the of throughout X% reflect that XX% we X,XXX to experienced to among homes. in modest

manage XX%, mortgage within been may the our believe each to the pricing. active business, lot demonstrates have certain in among buyer Ryan maintain markets presence releases, up in took why effectively in sales QX to of rise As to Reported strong we also were and we worked signups pace, rates. strength groups. we impacted communities actions and always interest response have primary a by The this adult mentioned,

high long While present best term is pace every way community at and deliver the maximizing different, is price to believe that returns. generally we margin over

You realized can see the expected in benefit strategy are the delivery still being while growing our of our last volumes of over strength which this year. margins gross

at Given approximately Ryan's compared revenues last QX a to increased comments our quarter, results, on Consistent the gains with throughout second billion. the year. increase our of home statement. generated pace in was income X% the top, financial we XX% count in down significant our with $X.X community strength sale X% Starting absorption

Our our $XXX. X,XXX price XX% average in quarter higher along all XX% a gains were $XX,XXX the pricing with to sales buyer the homes sales by or for for price in groups. a The revenues $XX,XXX to average quarter increase across increase in closings increase reflects driven

the to adult the up X% average of active the was sales for price XX% time year and increased quarter, while $XXX,XXX, $XXX,XXX. to to gained buyers For X% move-up prior $XXX,XXX second first

to was influenced continued QX increase our within closings strength by pricing experience time We first of in the XX% buyer California. but out communities,

tech about the well are over two prior the average time As rail home companies we've first of engineer where communities often communities talked on typically software a are on with prices first buying community calls, have These who the working is area. serving we one California buyer likely or sales $XXX,XXX. in at millennials lines older many townhouse their buyers

consistent adult they breakdown group and at closings first last with our XX% year. active follows, QX buyer is move-up, XX% time, by Looking as XX% which

homes of XX,XXX terms spec units we XX,XXX XX% our universe, In construction, sold Of with construction. in with production backlog the quarter production. XX% and or the homes being homes ended X,XXX under the are under remaining second

on third homes the keep we achieve increase expected will closings of quarter and increase to year range to homes. X,XXX represent XX% to us full to this which last deliveries expect and pipeline, over track to our year production of XX,XXX in Given X,XXX XX,XXX an between XX% XXXX

XX% over to the our higher Supported prior land-related quarter $XXX,XXX. per premiums. statement, revenues basis, income sales or price charges sales of sequentially margin first of quarters in premiums $X,XXX closings fell Given over XX our the our in warranty Note now lot lot year the from the XX two margin remaining $XXX,XXX. basis to $XX,XXX adjusted the utilized period. basis just pricing and our average signups, relative that $XXX,XXX On revenues last by an X.X% Attesting margin to was the increase $XXX,XXX discounts a XX environment which methodology, adjusted X.X% points the gross basis we've to operating for in year's in price from gross the and prior up to gross margins quarter of of home. gross points This points up our is option this of benefit range from an or $XX,XXX year. XX.X% down and Continuing that per is continue the and quarter guidance sales we of year-over-year expect excludes strength the increased the increases taken over have to home. average option of the price strategic to impact

with Given industry-leading returns to focus margins. gross our current market conditions, further on we're finding capital, consistent on opportunities high delivering our extend and invested

our of and of QX XX.X% in the range XX% to to margin we're be of of As higher XX.X% XX.X%. to margin in quarters. guidance prior reflects range to guide from be gross a XX% This for the to costs XXXX sequential The updating QX impact for are lumber is of QX gross the our gross to up XX.X%, and in both margin change system. which the the result, QX remainder through now expect moving from

the expect returns. actions a communities support also given availability margin relative of from We lot and on balance better support change, sales, and higher in in number certain closings current production of basis, our lot in to development California, to

Looking operating at generated our overheads, quarter. we better the in leverage also significantly

SG&A includes expense sale the reported insurance recorded benefit $XX X.X% million period. $XXX the related revenues home of Our million an in or of reserve with adjustment associated

Excluding this sale or SG&A home $XXX revenues. XX.X% for QX adjusted benefit, million our of was

over Our current year our an points basis improvement XXX prior performance year. represents of

and to of adjustment first XX.X% SG&A XX.X% this the recorded XXXX, to the revenues. our expect This our that resulting included generated was primarily neither sell million, XXXX sale focus reserve we In of the home Given excludes second in balancing actions portfolio. decision impact the be to reflects sale net guidance our gains reaffirming for we positions parcels the assets. on across our of in investments, from half of quarter, $XX quarter. year returns of land on also in range land non-core The insurance which of the two full last results these of sale guidance year's we're land risks

in increase quarter, the an volumes of X% quarter pre-tax our of result increase income the year. quarter million homebuilding which our income $XX represents higher of financial over of the generated services pre-tax last business the for was operations. primarily in For The second

which Our the exist in reflects competitive and year conditions market mortgage quarter that down is capture XX% the was which from today. highly rate XX% last

Our effective represents quarter income second rate million XX.X%. expense tax for which $XX reported the was of an tax

method during certain quarter includes IRS tax for benefit by net of and primarily the related quarter Our in laws. accounting to the rate was tax second $XX accepted state energy tax that tax million and credits change changes the

our with is items, approximately effective these rate Excluding company's consistent the was prior XX% tax guidance. which

$XXX million our million was share income PulteGroup's a $X.XX an from the per share in million last or is over which XX represent earnings company's quarter, per with primarily activities. diluted reported X% $XXX second calculated or On income XXX our year. significant For to compared increase net second million million reported $X.XX XXXX. count $X.XX for adjusted last adjusted our or decrease was the results decrease using year. due cash. the share the ended $XXX net adjusted XX% of quarter of results XXXX per basis, to is shares a balance or per a share income over share quarter repurchase we The share of Switching last with shares approximately $XXX were compared QX income net sheet, million per ongoing the share or $XXX basis, net share On $X.XX per million adjusted of with year.

debt cash the $XX.XX In for During per at we've repurchase remainder now the average continue at price common range our million and to Based the million million of repurchase year, operations, shares of XX% of $XXX start $XX to trending of of total the year we leverage have and share. to to our ratio repurchased shares remaining quarter within normal through XXXX. We ended is X.X $XXX million of is XX%. capital million target lower quarter, our XX% a XX.X%. on authorization. an with expect down on X.X this used we from This ratio the

operations. second of earlier, homes which spec finished under control reflects as XX,XXX specs, production our over higher year. sold quarter mentioned X,XXX homes construction increase last the than As we an increase I represents units under fewer The continue we ended to with having homes XXX across

fourth growth up our year For the with was XXXX. over to quarterly community X% for maintain our third which to This last X% X% consistent of we'll the quarters of and quarter, guidance increase XXX. count is

and lots second quarter, During approved under of option. we $XXX additional XX% approximately million approximately an the invested we X,XXX land purchase were in of form which acquisition some to

is $XXX last development smaller the company acquisition XX% durations about We continue size, per the and with development. over invested $XXX approximately in XXXX on land are us in community. as million and to to in new land focus track on Webb months positions million first that This several acquisition and invest million land of $X.X keeps Del which including was up deal in XXX six Through year. acquiring XXXX, communities the lots average shorter

cash between Given dividends improved with $XXX the million prior of an activities. profitability million from land we is and increase company's even repurchase this billion and significant investment, now expect XXXX before $XXX guidance. of our to share $X.X in This generate

goal our years month on progress reduced which quarter to deliveries, of or of As XX as Ryan down the position end owning via of controlled steady at trailing to the approximately the long-term less. we are XX% X owned make mentioned, XXX,XXX lot lots option. Based approximately successfully toward have years of controlled we our our three

Ryan some market Ryan? comments turn final call conditions. let to on me Now, over for the

Ryan R. Marshall

up provide open the conditions let a call comments we on the market we questions, experienced the me Before few quarter. during to

earlier, economic said backdrop remains of consumer as high supports I our low macro favorable continued is unemployment As is market. and positive which confidence the view the

has the West, weeks with Texas. results volatility. remained two the the demand on the markets. the although across interest versus closing, quarters third strong down the July, traffic continue good backlogs to finally, pleased our reported demand Consistent and quarter. Overall, of generally North-Eastern and Southeast we Midwest the financial see of signups our lengthening were given levels traffic In solid conditions with the in more signups in decisions and remained markets pace few the and high exceptional quarter of remained my And we to Lower see of country as we first for and out levels certain XXXX. comments, communities. to earlier made experienced price were first our continue in company middle delays we buyer markets development our the traffic lot reflect land while Florida at markets to in turn Coast. regions, website our in delivered Through in Looking interest demand high in buyer East constraints, in

valued combination approaching backlog homes billion performance. strong well the with to we're gross $X.X positioned XX,XXX report year at a With of outstanding in margins, full

Now, let me Jim turn Jim? the Zeumer. call back to

James P. Zeumer

get of participants follow-up. Great, that question call. thank yourselves as to explain with during call one the time many you. the speak the one as can ask remaining We'll open Katie, we'll and process, you that so for questions started. We if we the you possible limit

Operator

Our Rehaut first question JPMorgan. from Michael will come from

Michael Jason Rehaut

morning, everyone. Good Thanks.

trends guess investor in by trends regards to the area the segment of base First you that only referred demand also interesting a quarter. and was rates terms month. you slowdown to the intra-quarter little perhaps today, and that May order that I you that bit probably the did quarter is a comments I across XX saw in move, that given bps progressed addressing made most question, which as during the interest and interested of results of in XX improved the within bps, but

does in of be month curious small a susceptible And could So us kind any can quarter; a in during this the June. terms this such if bigger the of rates? if sense by your of month activity purchase the was April, order move kind to May, I make was growth you what cause adjustments picture land to give you also, demand

Ryan R. Marshall

get things better moved Yeah. Good would part – is we quarter. What which your Hey, the the first Mike, tell I as question. answered I've of think saw throughout I This morning. Ryan. is good question we

a level, kind I overall, it of the see my more talked softness. do how the national remarks, mentioned As business saw into we broader To buyer high. goes think and in tell at May and bit and to we communities the really of to I traffic month I'd remains was I prepared our you importantly a where as good that question, is about website, business the

translates So then that buyers sales. shopping They're and into are out.

So that and and being said, groups. certain some local across matter in variation the conditions markets seeing buyer are demand we

Michael Jason Rehaut

for think guess Ryan. turned if would question, there's second be just Okay. the that is in more the specific mentioned if that, growth part I terms of of maybe by to part of margin I my had other And ability first positive, but month month that or of due decline any interest, the choosing also appreciate order on slowdown and be kind I price a little pace. example, off, coin was you June guess of I the in to over

at Given being maybe the given and gross your margin the where just kind sufficiently just you like of solidly volume you are years? that to a do at obviously, you we're kind lot gross your point volume throttle margins the even margins spend drive raised of they hold can want position land the averages margins in feel or you you over and the above point strong growth cycle where increased little now growth, steady of ensure are bit a even moving to where couple at the industry next the a guidance, and order strong forward growth, back continued going and a them ship

Ryan R. Marshall

can. that many can as it parts if was touch as so I I Mike, see me question, a on as lot in Yeah, let there of

that very managing community pace a on And remained for we the focused solid possibly by by price community the the returns levers best has basis. we're and do driving shareholders. that in on strategy Our we can that

been the contributed a units. a the have Volume I margins in backlog side quarter, is as work a cost where sign-ups the side a done to price that of environment we're that create sales is approaching of So think, well XX,XXX that's part do business. the on that proud best great the quarter and very to generated gross margins both have that we number had certainly an have this in of equation to as we've testament nice second our we the and

seeing we're from we're trends, hearing to favorable we see we're in So and our demand offices like sales continuing what buyers.

that's mentioned, something I important. is to value important As is buyers, really affordability

a that to As the by continue volume that sales up, prices to address have gone think rates the will we and have bit the story things it's up rest concert for two ticked community that I and community softness of a contributed part to it saw be basis continue of We'll in assured have intra-quarter. mortgage on PulteGroup.

planned both prepared in on positive have on see the any view of land and the of we months As I think I market We're don't change balance that changing six remarks. don't far and as executing the your anything land year which we of well plan reflective our question our is through in touched spend. throughout our spend, Bob

Operator

Thank you.

Our Evercore comes Stephen question next from ISI. of Kim

Stephen Kim

order to there Thanks to on congratulations Yeah. decision lever price need the to to has about to much, be I side? you cause was a shift curious that. what seen more comparison difference most you Ryan, volume would a to what which negative than see encouraged results. would sustain the all environment of and and far guys noticeably the towards this side volume slightly as to wanted I your the you for on you keep just shift profitability the you the in of follow-up on about and environment Could for would you a have that more comment sense willing give and to what different very kind that recent quarter. be pace lever very of much see manage to sort the that lever the thus you us

Ryan R. Marshall

we how it all to And make of We available. question. the home play does for what attention good what that all think I available, Those Stephen, basis certainly is in kind come community by the new inventory we'd things pay volume. is terms ultimately confidence, on that are consumer inventory the into the macro of really kind resale us to lever. decisions pull trends, volume a down Yeah, of community

measure talked returns when we about, that the is, and the possible business demand we around growing, things a looking how what of all market the our overall, volume. conditions economy conditions, what ultimate As decisions – into up the lot local our make the we're is, environment can size of all what that of of those drive local out at we those the pricing is, how to availability best we is long look backlog we've play

So, is I'd in the for tell steadfast Bob XX,XXX say, quarter year things guidance our year. one that. for that we've last you of we've that volume units the heard We to took the XX,XXX in been at you units as the up and, reaffirmed XXX

very on we we're we'll overall market line with business community how make So by still community conditions performing much decisions in the basis. and look to at saw continue a those and

Stephen Kim

Great. taking. so, bit the you that was wondering, deliberately now was sustained time so appreciate level assessed that landscape two. think could little a some to bit and in is the that us lengthening of and out mind if about start Thank out lengthening you backlog the are of mentioned a – your you can you this slower I backlogs into where be and sense you on sort to orders now? if I process for or order that right-sized I a fact some how the going but in am a process give you take you and far going aggressive cycle that I you your of of out at you cycle also that. are? it. a quarter if there point to and you more such you of wondering lowered you felt probably the volume your were times they is another was Are that thinking could guess, like due probably you sort were bring West lower I specifically seeing that orders, maybe to And those West or something little this right was

Ryan R. Marshall

we've a inventory component owned drive like house times times are the inventory, of always we're great our production which to so Well, lots we a that importantly shorter progress are our to turns our – more reason making going of get builder, our land it's improve big the always where we inventory Stephen. cycle cycle how work to as our, going success, specifically part to of and against. driving we're We're

As really community of openings new combined specific along a with West what with it last was some goes, it's year, timing far a community fairly maximize the to as openings where California year backlog to of new was this in couple and price. and lot limited of homes difficult and in that pricing there made large a sold in control we've certain communities availability, areas decision the environment, paces so, entitlement the environment

contributed The I'd other in of we sales it's huge a centers, consistent to Sacramento to closer paces. driver of add, focus mentioning, have year's city but built worth which not staying our last the thing with out our positions Fresno and

Operator

Thank you.

KeyBanc. from Zener Ken from comes question next Our

Kenneth R. Zener

morning, all. Good

Ryan R. Marshall

Ken. Hi,

Kenneth R. Zener

the you guys have when seeing in get could example, we in seeing home the specifically within on you if since existing comment Sacramento, existing markets inventory see tends for We are rises, do focus. new it relationship Z Sacramento, an tend to down we're look a your also I And normal look impact where I guess, to that new sales. at comment are all see in seeing dynamics? you order but your pace Nashville suppress now, that very Thank up type sequentially, X%. down inventory. (XX:XX) what is at We you existing could were XX% versus we've you trends, order the maybe if inventory, obviously, in so My question is A what report sales at mentioned where seen sales rising we just think rising, you XX% year-over-year for our example, to you seeing market was inventory of I much. it. you're

Ryan R. Marshall

saw is joining inventory relationship Yeah, The morning. be most dramatic Ken, there home for is are the level below over months, that good us inventory resale bigger considered X.X certainly key there If it to certainly you'd would point in there this is has think markets certain and up go and in impact. slight a we still morning so Normally acknowledge see we tick that. lot don't on six normal. that sales There new impact months months, to probably a thanks a a markets six is I a X.X in start environment.

Kenneth R. Zener

you. Thank

Operator

Thank you.

Our next question comes from Ivy & Zelman from Associates. Zelman

Ivy Zelman

Thank you. Good morning guys.

Ryan R. Marshall

Ivy. Hi,

Ivy Zelman

you're actually year maybe buyer you that guess, slower Nice relative ago, X.X% help I fact the quarter. rates. some clarity and some the provide and fact said the Maybe the conversion reaction first-time to, I to think can or that you decreased discounts on rising seeing

while as what discounts guess I are it to pricing not is understand much able see to conversion I and So power. want you're like maybe declining, sounds

So explain that can you please? better

Ryan R. Marshall

we're seeing one now, make an inventory, to that continue community we're we'll things as to the a pay we're a in sensitive attention with Yeah, was as traffic on we've big have able and executed to. today. and new seeing discipline cetera. are that we need we've that economy drive of by driving wonderful really of And going returns et business the do proud overall sticking outstanding pricing company to modifications demand, rates, to going to home basis in we businesses I like power. a locations, teams out our on and touched what of and some we credit earlier the got explanation communities resale what's our interest around we're for component of. the field right it's pricing Ivy. it that to overall like the operating is to broader business as like we're on be a continue which We It's we It excellent pretty to of that well inventory, still community mentioned affordability, a and have. But what the questions, simple to our We're the quarter relates in the number we

I we that thing other The point have we ton design. which inventory a is That's of out our business. don't spec by how run is

more And are more the probably where inventory. dependent I places of with probably and it's that spec incentives those think strategies seeing heavily discounting, have so that you're some upon more

Robert T. O'Shaughnessy

really reflective thing of $XX,XXX unit. about add basis is one Ivy, so to ASP same, it's that one thing the still about dollars XX are add the the I'd our it's it's that, sorry increasing, a the while Yeah, points, I'd down to

Ivy Zelman

it. Got

in to it is, want consumer, you that terms contract you make about townhome, the whoever that and that's that I $XXX,XXX price? execute – to The able raise that returns. millennial the consumer buying the price you understanding first asset think of you the have or So maximize are older to hold you to just recognize if have contract

Ryan R. Marshall

your not question. sure understand we I'm

Ivy Zelman

seeing a you to product ago that of and is compared more apples there to able $XXX,XXX rates that apples you actually prices maybe take where are market that sensitivity around you on year same were in the and raise Are stability where to townhome. affordability, segment

Ryan R. Marshall

have the where I we pricing one matters. up yes, see are mix you is power. This buyer segments so, Yeah. ASPs had mean, certainly, across all can our

I think fact the think if talked prepared we that you affordability think about we of matters. the comments,

rates So going more to forward the prices are if seen but and it's ability our be rising a have increase bit in may little reflected margins. candidly that we challenging

Operator

Thank you.

from Nishu from Sood Bank. next Our Deutsche comes question

Nishu Sood

full or performance, ASP the is the a said on $XXX,XXX the just clarify of all because the $XXX,XXX, had you year, year, of first to last the quarters very you for clarify. but I just the for wanted so XQ, year reason I in to think sorry, wanted the the last think commentary. Bob, I that strong two to say heard two for you of asking I I'm obviously you. Thank quarters

Ryan R. Marshall

balance for not the year, average that's Nishu, for the the Yeah, year. of

Nishu Sood

Got it.

reverse wise drove down kind to second of what So it in mix of was would mix going in there quarter the second it again, strongly quite effect half the year. that something the that's

Ryan R. Marshall

true a points about that in a little had the in of the ramps and quarter the bit highlighted high for the up had as influenced, year the the business. as be we will of that California price of quarter the same year, volume half talked it first smaller has percentage We less of of will number be a years it second Yeah. back total the

Nishu Sood

strength, range? on lower you is will the like in or strong of Got year half SG&A of just the that something performance are it year back in SG&A, performance for ASC lower the than it. the And of why strong the – you there XQ, increasing kind XXX off not the

Ryan R. Marshall

to in. to You range Nishu come that expect we know guided the we've

investments with the more some things do are because lowest gotten and know we've lot don't ton of competitive be very quality make We substantially have important around culture think to that have company do and of progress I made we're a and ever that. we leverage we company SG&A, year-over-year in SG&A we that but our necessarily the on of a focused continue SG&A you'll proud see us that.

Robert T. O'Shaughnessy

we of we was we quarter Nishu, volume at our I'd if of which in thing guide end guide updated had given. the the remember increase actually, the Yeah, the that first you had add reflective the is

going changed and volume the a it's comfortable for SG&A, that terms of we here would terms our talked game guide why about talked from a we've therefore in margin better kind spend we're range. drive still in and of how our haven't about higher things with overhead haven't to volumes We incremental and we Ryan be our volume leverage, of forward has projected all

Operator

Thank you.

Our next Wells question comes from Stephen Fargo. from East

Truman Patterson

How morning, is East. guys on good for guys. Truman Patterson Stephen This Hey, doing? are you actually

Ryan R. Marshall

Good. How are you?

Robert T. O'Shaughnessy

Doing well, Truman.

Truman Patterson

fell segment? Good. on follow-up the recent region demand any wanted behavior. to has orders side, or any in rate the regions, rather mortgage in fell buyer just world, time side. pricing get and to scare change customers started any world Really Hey, the four and I'm than pricing consumer pricing the buyer the sense especially to also of side the in thinking on off just first your of side trying your move-up the really really they of on for

Ryan R. Marshall

doing a the we The first a okay, quarter, little you is a again Minnesota saw demand the California but And among business as mentioned do is of tell a with and see ending demand national decelerate at Southern would up, demand the bit strong time were get local in in conditions Southeast, seemed The the little well higher bit market first I'd little a bit time a I give matter. tad. good with holding and what kind I is but to but is did the points little Houston level Mike's price as you we but example off state, a slow then is Midwest but standpoint, buyers. soft, Truman, there those is bit demand West we a Yeah. moved from in Texas that through question, buyers.

okay, housing but demand matter. the overall is individual do So markets

see For the most think in price do with softening and of us, first both buyers of combination that mortgage we did matter. the I lower time points reflective and is think I of rates, a our price

they been builders price, the disproportionate segment late. all that particular and a has of the as to I to impact have have pass it how not And worked particular increases that strong sales it's packages through day. the that that think, of so in to to an lumber ultimately end can afford overall think impact us value they and on Proportionate what So certainly I assume on safe but the has consumer. had at see the just price

Truman Patterson

with prepared And up you guys. this segment I I change then by guys in thanks that know markets? in if rebounding the heard all Okay, remarks, June did give buyer absorptions any at and don't you in incentives your guys actually did then

Robert T. O'Shaughnessy

the blends X% X% group; first X%, up the which down quarter. Well, move-up XX%, down time down active for absorptions by to buyer adult

Ryan R. Marshall

Then incentives?

Robert T. O'Shaughnessy

started programs. sales. had about we've markets talking We've have meaningful any Incentives, not not obviously national people in seen there. incentive We're

Operator

Thank you.

comes Jack question from from SIG. Micenko next Our

John Gregory Micenko

Good Hi. guys. morning

the Can Another in sales by sort some in what regions Southeast, you question, the you the maybe of demand maybe was numbers? some of happening related saw us the give lower pace of shocker. region, order particularly

Ryan R. Marshall

Southeast. purchase I'd question, were simply there we our projected some a several Southeast, the us, the what points one-for-one communities and on the see those replaced John biggest see a little original basis, I is we for mentioned the Wieland closed tell Jack, of about did anticipated price so the which acquired we've Southeast bit higher was and in out not in prior what softness numbers that of driver that as But you our Yeah, have reflective you in of as of in part that. of of

John Gregory Micenko

margin margins seen, ago. one it part What from Okay. probably it and like effort was it's on better sale, wasn't year And could XXXX the that of the it back opportunity? least, did and I – segment think, like into then, you didn't you've at or the a maybe into feel the of XXXX land sell of what was sound the a product part better modernization you

Ryan R. Marshall

had it, an there value production have didn't that real that. West and Yeah, so in so couple and us, both a them. we there, we're market got of team asset assets was a a One sell in actually that not of we different buildable we in so you've out but was to elected today building and was by embedded so

the in of value. you've of the somewhat. where as and one de-risk appreciation we second a trying actually appetite California particular part again, as that The that sold really product to balance means And was significant you market, purchased for some from had series were can recently so community that a to generate just our in transaction seen risk off we we price

Operator

Thank you.

Our next from Carl from BTIG. question comes Reichardt

Carl E. Reichardt

Thanks. guys. Good morning,

Ryan R. Marshall

Hey, Carl.

Carl E. Reichardt

margins about about ask I'll second. demand, for ask won't I a

Given the by or you be you all lumber, that about specifically lumber beyond talk ones materials, cost guide for other talked that Ryan, impacted be of anything change controlling tariffs or about QX might labor relative you there be any and to impacting tariffs can well QX decline, related might meaningful? that to at anti-seasonal that availability might that's cost of that or in labor particularly number sort

Robert T. O'Shaughnessy

got Carl, here. Yeah, you've Bob

Carl E. Reichardt

Bob. Hey,

Robert T. O'Shaughnessy

Yeah. to. Certainly, lot attention the a we're paying cost environment is one of

trying way exceedingly good QX pricing teams because into influence highlighted and our that that we as purchasing job Our our possible high production buy one, we because a prices and pipeline as things; saw really and come We then will pricing. do efficiently of two recently protect lumber do of our to to buy the the saw that until we lumber. sequential margins will increases try

least tariffs, work minimize making there, got what we obviously think of there. With no of I terms that guess contracts would in biggest are what most trades that at I is our respect probably impact sources What to of obviously to think feel pricing to world. contributor we've to and changes production. pressures us, long-term is nice of and steel we've any multiple Chinese another a appliance pricing is already is seeing not the one we other Cabinets impact. our I can terms would point base, try the cost things to that a us of job real again that much producers labor of sure starting it's market, so from for do some of In that from we parts protect we'll one on something the with the that side the but some is we're and got source multiple

a came you will had year, a think relative that's meaningful the And with the on XX% And that we did. happened on think guess, market, into basis, the the it's didn't, time. have tariffs impact in last year reflected in already what's we but if don't think normal it pattern So pricing down about is the we lumber news interesting, on finally us seasonal I good lumber hey, the and pricing. saying, will turn that it over

again on influence won't production could So relative we're until starting XXXX. to provide some year, our relief tailwind there. That us basis, see some but next a in

Carl E. Reichardt

I'm I point/buyer price course going you whether a inland just is Thanks. with trying a lot if appreciate of of Can Okay, give to about lot thanks segment versus to over come year that California of a plus moving and to And parts or the for want help of sense a me mean a Fresno of, change that, sort It mix over the there's kind you just or a not of course next coastal, so, of sense me like the will bit ask get it. just communities how I little the location, next Bob. there. mix year, say, out sounds detail, would but then that could geographically? I from Sacramento, change

Ryan R. Marshall

Northern move our I that year think from I'll we mix business. see current is next stay relatively California to Carl, you'll as start mix in with California to mix going Yeah, our stable.

Empire and predominantly as I'd coastal a did jobs. to We business where business, XX% business. that going of. XX% California stable is relatively sales predominantly to a well. the Southern expect near year, remain that moved out going coastal, about have I Inland In moved business be we've last mentioned We forward so have Fresno Sacramento coastal, there that

Operator

Thank you.

Capital. RBC next Mike Our from question Dahl comes of

Michael Dahl

my option on wanted premiums slightly a way. start the questions to lot quarter I'm curious Hi. a premiums, questions. on asked One of thing cited the deliveries. in taking Thanks about, different for demand out I additional you couple

of as if this As you're option discernible getting on us deceleration shift the under looking to towards closer getting any contract whether give getting you're process with who there what are as side, and seeing are forward packages through affordability far issue close, terms is the anything buyers are create any buyers you to is also starting ARMs? can choosing in some and mortgage you on sense

Ryan R. Marshall

I'll Mike, a typically price, footprint. handle only thing probably pinched with The Yeah, on as slightly they'll Bob become that they the your start I'll smaller question. let to buyers mortgage take first question. I'd point with

standpoint. think take they find take not the home. they have necessarily a We a the that premium to to They're water I take lot premium. lower still may view. got something afford the options tag Potentially price things don't They things. those from They lot take lower a in want ways that fewer that's working them want. they seen

in his the let quarter-over-quarter, handle increases in or saw we detailed so actually haven't arm deceleration comment commentary, we a items. both increases Bob the as Bob So things those I'll And seen on in question.

Robert T. O'Shaughnessy

we've rate comparison of at our for number think they though year. proportion unless quarter, to that I of little the recent perceived we was the mortgages earlier, got but increase the to. we typically days ARMs seen XX to And sure. substantive are of can't locking quarter are most seen XX a our people are that locks seen were What so Essentially, we're so last X.X% a not that. change not just afford mortgages rate, cheaper originated Yeah. to have in we doing, do X% have volume, paying of people that as the a bit second we've is get not in attention and People for it's in rate relative a going the They need environment. rate rising because

Michael Dahl

Got it.

that just as how quarter, going referring in but backlog hopefully second Okay, the Oh, but is the forward, relates on the go to sorry on. I premiums it and And I the guess, or not the closings shaping was that's color question. helpful. Ryan, packages backlog occurred up some the option what to

Ryan R. Marshall

we're let part be but which you which And that saw Yeah, take of guide the you reason that's a haven't think second margin the holding not indicator think, back I the Mike, as the kind of best up I our far for seen profile seeing say, a no, year the question, I'll steady us there. we ask as change in to change. half of is would, our

Michael Dahl

Got it.

Ryan R. Marshall

the second And go ahead with question.

Michael Dahl

Yeah.

commentary, question of of Texas broken the in of some covered out terms deceleration but the little variation? curious there specifically really us in all Could there there footprint walk was you've by some because your around a kind was real you're you if of Texas. Second is major any bit more seeing country what through and markets,

Ryan R. Marshall

one Yeah, the is Mike. I highlight that would Houston,

that that can years. worst and went the city city I operate country that of in, that really is point that according a change I markets through thing our hurricanes three hundred I probably there. it's think, one other that floods only think performed expectations. in to has that the The is and one seen to The we've some seen we Houston the a

new timelines creating communities. it's think development and for I entitlement prolonged some

has and city overall a supply. some economy. economy the the healthy. think It's of on wrestling The is working homes healthy of damaged through I is there impact and that kind still that the

not I So we impacts I'm of the any would that legacy to sure reason why of there. can have the beyond storm, kind point softness seen

Operator

you. Thank

Maklari Securities Good (USA) question Credit next LLC Maklari Suisse. from - comes from Susan Susan Suisse Our morning. Credit

Ryan R. Marshall

Hi, the indicated thing was that little May, anything that the buyers leading wanted site - around is would comments Credit guess, The Susan. bit were sort Susan that to your Securities I dig changed to back Maklari of first to a (USA) of I traffic LLC pulling spending they're there Suisse visits then into time website. a have within you what that along that number or the the commented but nuances it's And with you there is of for? strong, kind of can amount Any or share on they're of looking that anything in bit. with us? terms the that been

Ryan R. Marshall

demand. we nothing has increases meaningful been to Traffic be are found future Susan, strong. that a No, indicator of The be year-over-year or an up. predictor, current to

about from the traffic were offices So that just maybe translating time along. positive. the need broadly with value the parts year to particularly is and time Credit same rate to we're level entry of of we can kind you some especially of into Susan think website other the than attention out your to Okay, traffic website those that and testing those foot of from see currently translates there Maklari guess the I that Suisse folks units - seeing are increased into what that's the into take you We're driving that a to continue how thank maybe Securities adult is adult commented then, drive so traffic. today and LLC the active spend things traffic trend and And new your conversion there, pay you. we business? more that first on buyer overall that website the you're to eventually to ago, the that's conversion plans with your we communities (USA) active close to and continuing anything the as move or roll But sales is

Ryan R. Marshall

a that mind. those I'd that plans floor level at really. – are specifically buyer broad plans in with not Well, floor say Those designed

plans commonly managed right what of under platform you adult the our It's plans of started four now. first seeing we the our significance floor level we're That if for have generation designed the obsolescence, five you're we We and commonly active similar the plans. with inspired come types new when active group consumer create for the buyers. we out buyers, with buyer plans our move-up and way that entry doing the for that's managed every and to just program we research consumer that will, all highlighting our back would of adult efforts the where years stated though was next same

Operator

Thank you.

B. next from question Rygiel Alex FBR. from Riley Our comes

Alex Rygiel

June wanted I just Did the your first you. buyers for confirm, Thank the rest order group business? buyer activity like in soft. was to rebound this time of

Ryan R. Marshall

better not expected we a improve buyer haven't Alex, improvement one seen of commentary, where business. would we but said, normally again, great be. did probably overall little May, as in I saw still group, we June the still have and but see that short we it than we've given Isolated to into July

Alex Rygiel

holding Okay. Are you discussed any not of time? your that seeing holding pricing this And pricing? you competition at is Pulte

Ryan R. Marshall

Well, on the pricing questions that one inventory I earlier of that answered more seeing where the to hold not inventory. we're It's are builders have folks ground. expensive the hold

You've got and associated gone where inventory, discounts seeing. There's of lot it. into with finished up we're a the that's that's tied expenses of ancillary a have capital traditionally lot what so

pricing. to a the much by it's of It's in not indicative chosen competitors hold too do way not and We're things design. that it. allows We think our run of our that need seeing I which some to are position sales we've they inventory to that national business us the few to is one and so move start

Operator

you. Thank

will from Horne Buck Our James. next question from Raymond come

Buck Horne

A morning. thanks. spend. Hey, Good the land quick question on

count full guys we think community about a of you XX% year. reasonable targeting how are sort I for for would XXXX? that be the – as for proxy you some up read that Should think

Ryan R. Marshall

a is that about I answer think it's for and, be that talking the no. XXXX. early broadly, Buck, to Yeah, We'll little count on guidance community to provide

the quarter. read things give can't that in you a option we'll color lot into because some that You fourth raw, into versus finished. that is factor and that of There on

Buck Horne

with full your first year, And going this the incremental what's expectations where for for priority $XXX cash Okay, flow thanks. that is to year? million the raised

Ryan R. Marshall

great a it's Yeah, question.

the you to we point laid allocation XXXX. back I'd capital in that think, I out

rising We an if investment. we're the about invest use then the want a attractive at I in thought that to one foremost, pay that and to our debt interest to look is in buyback stock. rate capital thing if might excess The was would add our going that business. we First now We business, feel dividend. to we we might good environment

I promise we'll And the we how money. is thoughtful that can one so be use thing about

Operator

Zeumer for Thank call closing this Jim back to you. to time, the I like turn At remarks. would over

James P. Zeumer

this any you. follow-up the if of we Great. questions, you. appreciate everybody's be day forward with you remainder you available I the certainly and look quarter. Thank Thank morning. time have We'll to next over speaking

Operator

today's ladies gentlemen. teleconference. This and you, Thank concludes

You may now disconnect.

James P. Zeumer	PulteGroup, Inc.
Ryan R. Marshall	PulteGroup, Inc.
Robert T. O'Shaughnessy	PulteGroup, Inc.
Michael Jason Rehaut	JPMorgan Securities LLC
Stephen Kim	Evercore ISI
Kenneth R. Zener	KeyBanc Capital Markets, Inc.
Ivy Zelman	Zelman & Associates
Nishu Sood	Deutsche Bank Securities, Inc.
Truman Patterson	Wells Fargo Securities LLC
John Gregory Micenko	Susquehanna International Group, LLP
Carl E. Reichardt	BTIG LLC
Michael Dahl	RBC Capital Markets LLC
Susan Maklari	Credit Suisse Securities (NYSE:USA) LLC
Alex Rygiel	B. Riley FBR, Inc.
Buck Horne	Raymond James & Associates, Inc.

PulteGroup (PHM) 26 Jul 182018 Q2 Earnings call transcript