PulteGroup Q1 2024 Earnings Report $91.78 -4.36 (-4.53%) As of 04/8/2025 03:59 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast PulteGroup EPS ResultsActual EPS$2.87Consensus EPS $2.36Beat/MissBeat by +$0.51One Year Ago EPSN/APulteGroup Revenue ResultsActual Revenue$3.95 billionExpected Revenue$3.59 billionBeat/MissBeat by +$361.95 millionYoY Revenue GrowthN/APulteGroup Announcement DetailsQuarterQ1 2024Date4/23/2024TimeN/AConference Call DateTuesday, April 23, 2024Conference Call Time8:30AM ETUpcoming EarningsPulteGroup's Q1 2025 earnings is scheduled for Tuesday, April 22, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryPHM ProfileSlide DeckFull Screen Slide DeckPowered by PulteGroup Q1 2024 Earnings Call TranscriptProvided by QuartrApril 23, 2024 ShareLink copied to clipboard.There are 15 speakers on the call. Operator00:00:00Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the PulteGroup, Inc. Q1 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Operator00:00:15After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Jim Zumer. You may begin. Speaker 100:00:34Thanks, Gene. Good morning. Let me welcome everyone to today's call. We look forward to discussing Polter Group's outstanding Q1 operating and financial results, the period ended March 31, 2024. I'm joined on the call today by Ryan Marshall, President and CEO Bob O'Shaughnessy, Executive Vice President and CFO Jim Osovsky, Senior VP, Finance. Speaker 100:00:57A copy of our earnings release and this morning's presentation slides have been posted to our corporate website atpulsigroup.com. We'll post an audio replay of this call later today. I want to alert everyone that today's presentation includes forward looking statements about the company's expected future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation slides. Speaker 100:01:27These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan. Ryan? Speaker 200:01:36Thanks, Jim, and good morning. As you read in this morning's press release, PulteGroup reported record first quarter results across many of our key financial metrics From top line revenues of $3,800,000,000 gross margins of 29.6 percent to bottom line earnings of 3 point $1.0 per share, it was an exceptional quarter. These strong first quarter results helped to drive a return on equity of 27.3% for the trailing 12 month period. Our strong first quarter results reflect long term strategic planning and a disciplined capital allocation process that have underpinned PulteGroup's success for more than a decade. I would suggest that another driver of our record Q1 results are decisions we made in the Q4 of last year, decisions that I think are emblematic of the balanced approach we take to running our business and to delivering high returns. Speaker 200:02:34On our last earnings call, we talked about decisions we made in the Q4 of last year to not lower our prices in a chase for volume. As you will recall, demand in the Q4 of 2023 had started slowly, but improved as interest rates begin to moderate. As we made the decision to push incentives aggressively as the quarter progressed, we likely could have delivered higher closing volumes in 2023. With demand improving in the Q4, we elected to hold our pricing and have had more inventory available for the 2024 spring selling season. The result of this decision is that we were in a position to sell and close more homes in the Q1 of 2024 and at higher margins. Speaker 200:03:22That's what you see in our Q1 results. Close ins and gross margins above our guide as demand dynamics allowed us to sell more homes with better net pricing. When buyer demand is rising, we're often asked how many more homes we can sell Given the value we place on entitled lots and our focus on driving high returns, more volume is not the only answer as we work to balance pace and price to drive high returns. Within our operating model, stronger demand provides choices. We can sell more houses or we can raise prices or as was the case in the Q1, we can do both. Speaker 200:04:02What we experienced in the Q1 is that areas of strong demand last year such as the Southeast, Florida and Texas continued to perform well into 2024. Even more positive is that areas that had some struggles in 2023, notably Arizona, California and Nevada were much improved in 2024. Consistent with the favorable conditions in the Q1, almost all our markets displayed pricing dynamics that were stable or improving, which allowed us to raise net pricing in more than half our communities. As you've heard us say many times, our pricing decisions are made with the goal of delivering high returns and the best overall business outcomes. Depending upon the community and the buyers' wants and needs, we may have raised base prices or lowered incentives. Speaker 200:04:56The result being that net pricing in the quarter across many of our markets was up between 1% 5%. The impact of these actions on our business performance is powerful. As Bob will discuss, we are increasing guidance for both full year closings and gross margins. Against generally favorable demand conditions, the supply of available housing remains tight. We have the long term structural issue resulting from a decade of under building that has the country short approximately 4,000,000 housing units. Speaker 200:05:31At the same time, the available inventory of existing homes for sale continues to be low as homeowners remain locked into their low mortgage rates. Life happens, so we are seeing some additional existing homes come to market, but the numbers remain well below historic rates. As a homebuilder, this is a great operating environment as we are supplying a product that a lot of people need and want. I appreciate, however, that our country's housing shortage can create hardships for today's consumers as the lack of supply keeps housing prices high. In fact, some of our recent buyers said that they made the decision to buy now because they couldn't wait any longer for rates to roll back. Speaker 200:06:16In a market where home prices are high and because of limited inventory, they will likely continue moving higher. Our company's ability to offer targeted incentives, particularly mortgage rate buy downs is a powerful tool that can help bridge the affordability gap. For example, in the Q1 approximately 25% of our homebuyers used our National Rate Program. In a world where the consensus is that interest rates will be higher for longer, our interest rate incentives likely become an even greater competitive advantage, especially relative to the existing home seller. Higher interest rates create additional challenges for today's homebuyers that we appreciate that rates are moving higher because of a resilient economy and a strong job market. Speaker 200:07:04Given these conditions, we are optimistic about 2024 and Polti Group's ability to continue delivering strong financial results. Now let me turn the call over to Bob for a review of our Q1 results. Bob? Thanks Ryan and good morning. Speaker 300:07:20As Ryan noted, the company delivered exceptional operating and financial results in the quarter, which have us well positioned to realize outstanding financial performance throughout 2024. In the Q1, we reported home sale revenues of $3,800,000,000 which represents an increase of 10% over the prior year's Q1. Higher revenues in the period were driven by an 11% increase in closings to 7,095 homes, partially offset by a 1% decrease in average sales prices to $538,000 The lower closing price compared with the Q1 of last year reflects a shift in the geographic mix of homes closed as we realized relatively higher closings from our Southeast and Florida markets with more modest increases in our higher priced Western markets. Closings in the quarter came in above our guide as we had available spec inventory to meet the strong buyer demand we experienced in the period. As Ryan highlighted, by choosing not to chase volume in last year's Q4, we had additional inventory in Q1 that we were able to sell and close with better margin due to the improving buyer demand activity in the quarter. Speaker 300:08:31Our spec production is predominantly within our first time buyer communities. So on a year over year basis, we realized increased closings from first time buyers. In the quarter, our closing mix included 41% first time, 36% move up and 23% active adult. In the Q1 of last year, the mix of closings consisted of 38% first time, 36% move up and 26% active adult. Reflecting the favorable demand conditions we experienced in the Q1, net new orders increased 14% over last year to 8,379 homes. Speaker 300:09:09In the quarter, we realized a year over year increase in gross orders and a reduction in cancellation rate. Cancellations as a percentage of starting backlog fell to 10.1%, down from 12.7% in the Q1 last year. Average community count for our Q1 was 931, which is an increase of 6% over the prior year and in line with our guidance for year over year community count growth of 3% to 5%. The resulting absorption pace of approximately 3 homes per month for the quarter was above our historic average for the period, excluding the pandemic impacted years of 2021 2022. I would also like to highlight that orders in the quarter were higher across all buyer groups, which is another sign of the overall strength of the market. Speaker 300:09:56More specifically, net new orders among first time buyers increased 8%, move up increased 22% and active adult increased 12%. Consistent with earlier comments, the large increase in orders among move up buyers was influenced by improving market conditions in the West, where our business mix is much more heavily weighted towards move up. Given this strong start to our spring selling season, our quarter end backlog increased to 13,430 homes with a value of $8,200,000,000 We started approximately 7,500 homes in the quarter and ended the period with a total of 17,250 homes under construction. Our production pipeline includes approximately 7,000 or 41 percent spec homes, of which 1337 are completed. We are operating just above our target of 1 finished spec per community, but believe carrying a few more finished specs is the right strategy, given buyers' preferences and the fact that we are still in the more active spring selling season. Speaker 300:11:02Given the units we have under construction and their stage of production, we expect to close between 7,800,8200 homes in the 2nd quarter. With the strong start to the year in both quarters and closings, we are raising our guide for full year closings to approximately 31,000 homes. This would represent an 8% increase over 2023, which is the higher end of our long term goal of growing our closing volume between 5% 10% annually. Closings in the Q1 had an average sales price of $538,000 which was slightly below our guide for pricing of $540,000 to $550,000 Relative to our guide, pricing in the quarter was influenced by the geographic mix of closing, along with a higher volume of spec homes closed in the period. As we move through the remainder of the year, we expect the mix of homes closed in each quarter will result in ASPs consistent with our prior guide of $540,000 to $550,000 For the Q1, we reported a gross margin of 29.6%, which is an increase of 50 basis points over the Q1 of 2023 and a sequential gain of 70 basis points from the Q4 of 2023. Speaker 300:12:17At 29.6%, our first quarter gross margin was also notably higher than our guide. Beyond Ryan's comments that we are achieving high returns by actively managing both pace and price, mix had an impact on our reported Q1 margins. Higher demand increased in the quarter as the quarter advanced, which allowed us to sell and close more homes in the period than forecasted. On a relative basis, more of these closings occurred in our higher margin markets in the Southeast of Florida, resulting in a meaningful increase in reported gross margins for the quarter. Based on Q1 sign ups and the composition of our backlog, we would expect the geographic mix of closings to be more balanced as we move to the remainder of the year. Speaker 300:13:01That being said, we're raising our gross margin guide for the remainder of 2024. We had previously guided to quarterly gross margins of 28% to 28.5%, but we now expect gross margins in the 2nd quarter to be approximately 29.2%. Based on current backlog, we'd expect gross margins in the 3rd and 4th quarters to be approximately 29%, but we still have homes to sell and close. So demand conditions over the coming months will impact the results we can ultimately report. Beyond buyer demand and near term pricing dynamics, the gross margin guide for the remainder of 2024 also reflects expected changes in the geographic mix of homes we expect to close. Speaker 300:13:44Given recent sign up trends, we anticipate closing more homes in our West region, which currently have a lower relative margin profile due to the fact that we adjusted pricing in these markets over the course of 2023 to achieve appropriate sales basis. Looking at our costs, reported SG and A in the Q1 was $358,000,000 or 9.4 percent of home sale revenues. As noted in our press release, our reported SG and A for the period includes a $27,000,000 pretax insurance benefit. SG and A in the Q1 of 2023 was $337,000,000 or 9.6 percent of wholesale revenues. Consistent with our previous guide, we continue to expect SG and A expense for the full year be in the range of 9.2% to 9.5% of home sale revenues. Speaker 300:14:33Based on normal seasonality, we expect to realize increased overhead leverage as we move through the remaining quarters of the year. Our Financial Services operations reported pretax income of $41,000,000 for the Q1, which is an increase of almost 200% from last year's pretax income of 14 dollars 1,000,000 The increase in Q1 pre tax income was driven by better market conditions across our Financial Services platform. Financial Services also benefited from higher capture rates across all business lines, including an increase to 84%, up from 78% last year in our mortgage operations. As noted in this morning's press release, in the Q1, we completed the sale of a joint venture that resulted in a gain of $38,000,000 On our income statement, this gain was recorded in equity income from unconsolidated entities. Our reported Q1 pre tax income was a period record of $869,000,000 an increase of 24% over last year. Speaker 300:15:35Against that, we recorded tax expense of $206,000,000 which represents an effective tax rate of 23.7%. Our reported Q1 tax rate was impacted by energy tax credits and stock compensation deductions recorded in the period. For the balance of the year, we continue to expect our tax rate to be in the range of 24% to 24.5%. In total, our reported Q1 net income was $663,000,000 or $3.10 per share, compared with prior year reported net income of $533,000,000 or $2.35 per share. Earnings per share in our most recent quarter benefited from a 6% reduction in share count compared with the prior year as we continue to systematically repurchase our stock. Speaker 300:16:23Moving past the income statement, we invested approximately $1,100,000,000 in land acquisition and development in the Q1. Consistent with our recent land activity, 60% of our land spend in the quarter was for the development of our existing land assets. Our Q1 land spend keeps us on track with our plan to invest approximately $5,000,000,000 in land acquisition and development for the full year, of which we continue to expect about 60% will be for development, with the remainder for the acquisition of new land positions. We ended the quarter with approximately 220,000 lines under control, of which 51% were healthy option. The purchase of several large land positions in combinations with decisions not to move forward with the few option transactions during the quarter lowered our lot option percentage from the end of 2023. Speaker 300:17:14I would highlight, however, that 74% of the lots we have approved in this most recent quarter were under option. As our first quarter numbers indicate, we continue to work toward our multiyear goal of controlling 70% of our land pipeline via option. Looking at our community count, we continue to expect average community count in 2024 to increase 3% to 5% in each quarter over the comparable prior year period. Along with investing in our business, we continue to return capital to shareholders. In the quarter, we repurchased 2,300,000 common shares at a cost of $246,000,000 for an average price of $106.73 per share. Speaker 300:17:56In the quarter, we also opportunistically purchased approximately $10,000,000 of our outstanding bonds. After allocating approximately $1,400,000,000 to investment and the return of funds to shareholders, we ended the Q1 with $1,800,000,000 of cash. Taking all of this into account, our quarter end gross debt to capital ratio was 15.4%, while our net debt to capital ratio was only 1.7%. Now let me turn the call back to Ryan for some final comments. Speaker 200:18:28Thanks, Bob. As you would expect, given the strength of our Q1 results, buyer interest was high in the period as the order of traffic into our communities due to the recent increases in interest rates, particularly within the SunTEX brand. While the change is relatively modest and based on a limited number of days, consumer feedback suggests that higher rates are causing some buyers to evaluate the timing of their activity due to the volatile interest rate environment. We'll continue to monitor how buyers respond to changes in the rate environment and are prepared to adjust pricing or incentives to ensure we are appropriately turning assets. During our last earnings call, we talked about the opportunity for Pulte Group to grow its business 5% to 10% annually. Speaker 200:19:23Given the lengthy land investment process, organic change in this industry takes time to accomplish, but we have been systematically planning and positioning to deliver against this goal for the past few years. I think that the company's efforts are reflected in the allocation of capital into growing our business. Including our Q1 spend since 2021, our operating teams have invested $14,000,000,000 in land acquisition and development with plans to invest another $5,000,000,000 in 2024. Along with the land, we have been investing in our people and working to ensure the needed trade capacity is available to support our expanding operations. I'm proud to say that we've accomplished this while adhering to the same underwriting hurdles and investment disciplines, which have been the cornerstone of PulteGroup for the past decade. Speaker 200:20:16Such discipline has allowed PulteGroup to more consistently grow its earnings, drive substantial cash flow from operations and deliver high returns. And we've accomplished this while maintaining the superior build quality and customer experience which PulteGroup homebuyers have come to expect. Before opening the call to questions, I want to take a minute to recognize and celebrate our team for once again being named a Fortune 100 Best Company to Work For. What makes this recognition so important and gratifying is that it's based on feedback from all of our employees. This marks PulteGroup's 4th consecutive year on the list and is a testament to the culture of personal caring and professional development that we work to maintain. Speaker 200:21:02I am proud to lead such an organization that is committed to taking care of our customers and each other. Let me now turn the call back to Jim Zumer. Speaker 100:21:10Great. Thanks, Ryan. We're now prepared to open the call for questions, so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Dean, if you would explain the process, we will get ready to get started with Q and A. Operator00:21:28Thank Your first question comes from the line of Stephen Kim with Evercore ISI. Please go ahead. Speaker 400:22:05Yes, thanks very much guys. Impressive results and appreciate all the guidance that you provided. I guess my first question relates to your longer term targets with respect to land. Ryan, I think the last time I asked you this question, I was curious about sort of where your long term target is. And I think I stated it in terms of years owned. Speaker 400:22:29I understand that you want to have about 7 years controlled with about 30% options over the long term. That would put you at about a little over 2 years of owned land. You're quite a bit above that now. And so my question is, am I thinking about that right? Is your long term target for own land a little over 2 years owned? Speaker 400:22:52And over what time span do you think we should expect you to migrate to that if that is in fact your target? Speaker 200:22:59Yes, Stephen, thanks for the question. I think your overall target of 7 years control is about right. And then we stated our long term target of optionality at 70%. We do think it will be a multi year journey in getting there. And that's really driven by the fact, Stephen, that we want to do it in a very organic natural way that drives ideal economics for each individual transaction. Speaker 200:23:31We highlighted in the prepared remarks, Bob did, that in the quarter, 74% of the deals that we approved were under option. We think that type of activity over the next several years will have us arrive at our long term target in a very natural way. When we do that, to your point, we'll be right around something just over 2, 2.5 years of owned land at that point. Speaker 400:24:01Yes. And thanks for that. And then as you progress in that manner, it will unlock some additional cash flow in addition to your net earnings. And so I wanted to turn to cash flow next. I think you gave a guidance, a guide for cash flow from operations for the full year previously at about $1,800,000,000 You've taken up you had a great 1Q, You've taken up your outlook for both volume and gross margin and, let's just say operating margin for the year. Speaker 400:24:31Can you give us an update on where you're thinking cash flow from operations may come in for the full year in light of those changes? And maybe even more importantly, what should we expect in terms of deployment into dividends and repurchases? I noticed this quarter, for example, like it was pretty much buybacks was pretty much equal to cash flow from operations and your leverage is pretty much stabilized in low single digits. So is it right to think that maybe whatever you generate in cash flow from operations with a little bit of flex quarter to quarter, but in general that's about what you would deliver in terms of repayment sorry, repurchases and dividends? Speaker 300:25:09Yes, Stephen, it's Bob. Good morning. We didn't update the guide on cash flow. It's early in the year. We're thinking about what we're investing in the business. Speaker 300:25:21You can see if you look at the balance sheet just since the end of the year, we're up about $300,000,000 in investment in the balance sheet, roughly half land, half house. And so to your point, we certainly expect with incremental volume and incremental margin that will generate a pretty healthy amount of cash. Some of that will be invested to meet that 5% to 10% growth that we've talked about. So more to come on that as the year progresses certainly, but I think the bias would be for more cash from operations. And to your point on capital allocation, I think we've been pretty consistent, right, for the last 10 years since we laid out our strategy for capital allocation. Speaker 300:26:10A, invest in the business, pay a dividend that grows with earnings, buy back stock with excess capital against a modest debt profile. Obviously, the leverage is lower than we had anticipated. We look at liability management as part of our capital allocation. So I don't know that I'd go so far as to say cash flow from operations will equal repurchase activity. I think we've been pretty clear we're going to report the news on what our repurchases are going to be. Speaker 300:26:45But we obviously in a world where we're generating cash at that level, particularly if we have less invested in the balance sheet as we move towards that 70%, it will free up capital and we'll work through what to do with that capital as we generate it. Speaker 400:27:03Okay. Well, we'll be staying tuned. Thanks a lot guys and congratulations on the strong results. Speaker 100:27:08Thanks, David. Thanks, David. Operator00:27:12Your next question comes from the line of Matthew Bouley with Barclays. Please go ahead. Speaker 500:27:19Good morning, everyone. Thank you for taking the questions. So in the Q4, you as you mentioned, sort of didn't raise incentives to chase volume. Now speaking to rates being higher for longer, eventually we'll be past the peak of the spring demand and all that. So I guess going forward, how are you thinking about that trade off with incentives from here given where your margins are? Speaker 500:27:46Is there an opportunity to perhaps trade a little bit of that margin to drive better growth obviously in the context of supporting returns? Thank you. Speaker 200:27:56Matt, good morning. It's Ryan. Thanks for the question. We've said in the past, we're not going to be margin proud and I would tell you that remains true. As we highlighted in some of my prepared remarks today, we believe our operating platform and how we've positioned our specific community investments we're in a great position to command excellent pricing, get pace and price, which you saw in this most recent quarter. Speaker 200:28:25We given the interest rate environment that we are clearly going into higher for longer, we've got the ability to use the very powerful tool of forward mortgage rate commitments that allow us to offer a pretty attractive incentive program. Right now, we're at 5.75% nationally and about 25% of our buyers are taking advantage of it. The other thing I'd highlight is that 60% of our business is move up and active adult, which tends to not be quite as rate sensitive as the first time buyer. With that first time buyer that's where predominantly our Centex brand predominantly first time buyers and we see a higher percentage of those buyers take advantage of the 4 great commitments. The last piece, Matthew, that I'd probably point out is that our guide for the balance of the year assumes that the incentive load that we currently have, which on the most recent quarters closings was running at 6.5%, we've assumed that that stays flat going forward. Speaker 500:29:40Got you. Okay. Thank you for that, Ryan. The second one, I wanted to move to the topic of land costs and land inflation. I think last quarter, you had spoken to the potential for mid to upper single digit inflation in land, but maybe wasn't totally clear on exactly when that would impact your gross margin. Speaker 500:30:01I'm curious, can you kind of walk us through the timing of sort of land costs flowing into your gross margin? And then kind of what are you seeing in real time in the land market? Has the market started to decelerate at all? Or is it kind of still kind of chugging along at that mid to upper single digit rate? Thank you. Speaker 300:30:21Yes, Matt, it's Bob. That mid to high single digit increase in our lot costs was in our Q1 and is expected to continue through the balance of the year. So when we gave the margin guide, we had pretty good visibility into our lot costs because those are lots typically on the ground already. So it's there. In terms of the current market conditions, it's still competitive out there. Speaker 300:30:51I've said this before, land hasn't gone on sale and slight variations in market typically don't result in prices declining. The market is super efficient on the way up, a little bit sticky on the way down. So for quality parcels, it's competitive. Speaker 500:31:16Got you. All right. That's clear. Thanks, Bob. Good luck, guys. Operator00:31:23Your next question comes from the line of Carl Reichardt with BTIG. Please go ahead. Thanks. Speaker 600:31:30Good morning, guys. I think it's the first time since mid-twenty 20 when you haven't addressed construction cycle times. So I thought at least I'd ask across the markets, products and geographic markets, our cycle times effectively normalized now for you or are we still a little bit longer than you were pre COVID? Speaker 200:31:53Good morning, Carl. Thanks for the question. We saw a couple of days of cycle time improvement in the most recent quarter. So we were at 128 days, down from the 130 that we ended the Q4 of 2023. And we are still on track and still are targeting being at 100 days by the end of the year. Speaker 200:32:17When we look deeper at our Q1 numbers, we had some long cycled closings that had been in production for a long time and many cases were multifamily and condo buildings that we think kept the overall number that I just shared with you of 128 days a higher a little bit higher than what we think is our actual run rate at this point. When we look at a lot of our markets, we're already back to kind of pre COVID cycle times of even sub-one hundred days. So we've made a lot of progress in a lot of places. We have a few markets that are a little stickier, where we're working hard to get cycle times back to where we'd like them to. But by and large, we still feel that the target we've set of 100 days is very much in reach. Speaker 600:33:13Great. Thank you, Brian. And then you talked a little bit about existing home inventory creep that I think we're seeing in some of the data. If we dig into that, Ryan, if you can dig into that, is this inventory that you'd expect would be effectively a net neutral impact of the demand supply? In other words, houses to move elsewhere versus vacant capacity, meaning investors or second homeowners who are putting their homes on the market effectively vacant, Because I think there's an important difference between the 2. Speaker 600:33:44So to the extent that you know, what are you seeing? Thanks. Speaker 200:33:48Yes. Outside, there might be I'm sure there's some markets, Carl, where there is vacant investor driven inventory that you could characterize as new supply. The majority of the markets where we operate, we think any existing resale inventory that does come to market, those are buyers that are going to go buy another home somewhere else. So we think it's largely neutral on the overall supply side. Speaker 600:34:19Thank you, Rod. Thanks all. Speaker 200:34:21Thanks, Howard. Operator00:34:25Your next question comes from the line of Anthony Pettinari with Citi. Your line is open. Speaker 200:34:33Good morning. Speaker 300:34:34Good morning. Speaker 700:34:34I was wondering if you could Speaker 800:34:37talk about maybe the potential impact of the NAR settlement on your business or maybe the broader industry and any kind of potential secondary impacts to Pulte? Speaker 200:34:51Yes. Anthony, we're watching it closely as I think a lot of the real estate world is. Where we think it ultimately goes is it will create better transparency around the fee structure. And we'll likely change over time the way that the providers of those services charge and the users or the consumers of those services ultimately pay. So, we realtors are important part of our business and over probably 60% of the sales that we have include a buy side realtor involved. Speaker 200:35:36So, we certainly support the realtor community. They've been an important part of our company for a long time. But we are watching the way that the landscape there will certainly change. Speaker 800:35:50Okay. And then you talked about stronger trends regionally, I think in Nevada, Arizona, California, if I got that right. Is there anything particularly driving that in your view? And maybe you can just talk about the kind of long term attractiveness of that region as you kind of build out the community count? Speaker 200:36:12Yes. A couple of things happened there. Was a market that saw a lot of price appreciation in the COVID years. Affordability, we think got strained for certain. Last year, we did a fair amount of price discovery as we work to right size what our go to market price was in those markets. Speaker 200:36:38That combined with I think a general improvement in buyer sentiment contributed to the lights coming back on in the Western markets. So, some of the markets that we'd highlighted pretty consistently last year, Seattle, Northern California, Southern California, Las Vegas, Phoenix, those were strong contributors to our overall results in this most recent quarter. We'd expect that to continue. Bob highlighted that the relative margin contribution out of those markets will be lower than some of the other parts of our business. We've incorporated that incremental volume that we're getting at slightly lower margin contribution profile in the archive. Speaker 200:37:26So we're look, we're pleased that those markets are contributing. We got a lot of capital invested there. They're big housing markets. People want to live there for a number of reasons, climate jobs, etcetera. So we're pleased that they're doing well. Speaker 200:37:47Okay. That's helpful. I'll turn it over. Operator00:37:54Your next question comes from the line of Michael Rehaut with JPMorgan. Please go ahead. Speaker 900:38:01Hey guys, good morning. This is Andrew Ozzie on for Mike. Quick one, I just wanted to drill down if I could on the demand trends you've been seeing over the last few months, just given the change of rates and some concerns in the market. I'd love any kind of progression you saw in the quarter and here into April? Speaker 200:38:22Yes. It was a strong quarter, strong Q1. We highlighted that we saw some trends that were even stronger than normal seasonality. The 1st few weeks of April have continued to show signs of strength. We did highlight that as we look at traffic, new traffic that's coming into the stores, while a limited number of days in that data set, we are seeing a small downturn that we think is reflective of the change in the rate environment. Speaker 200:38:59So we're going to keep an eye on it. We don't at this point think it's anything to be too alarmed about, but we're watching Speaker 900:39:10it. Great. Thank you. And then I guess secondly on the material costs, how have these kind of trended and any kind of detail and how that's reflected in your 2Q gross margin, kind of your assumptions for sticking brick costs? Speaker 300:39:28Sure. Build costs, they were stable in the Q1, about $80 a square foot for base house. That's flat with Q4 of 2023. It's actually down from $84 a square foot in the Q1 of last year. As we look at 2024, we expect cost inflation on labor materials to be pretty manageable with low single digit increases, and we factor that into our guide. Speaker 900:39:56Thank you so much. I appreciate it. Congrats on the quarter. Speaker 100:39:59Thank you. Thank you. Operator00:40:03Your next question comes from the line of John Lovallo with UBS Financial. Please go ahead. Speaker 1000:40:10Good morning, guys. Thank you for taking my questions as well. So the revised full year gross margin outlook is about flat year over year. And I think previously you had talked about pricing being kind of flat year over year. That was a little bit better in the Q1 for sure. Speaker 1000:40:29Mid to high single digit land cost depreciation, kind of low single digit construction cost appreciation. Just curious how you guys are managing that to actually achieve a flat year over year gross margin in that kind of cost environment with what had previously been expected to be sort of flattish pricing? Speaker 300:40:49Yes, I think it's the strength of the market, John. We highlighted that we're raising prices in a number of our communities that 1% to 5%. That's really the driver combined certainly in this Q1 with the mix differential that we had highlighted. Speaker 1000:41:06So is it pricing just pricing and mix a little bit better than previously expected? Speaker 300:41:11Yes. And then on the mix, just to be clear, John, the mix was really a Q1 issue. We think that smooths out based on the relative strength of volume that Ryan highlighted out West. So we'll get more of that relatively lower margin profile in the back half of the year. Speaker 1000:41:31Okay. And that was sort of my follow-up is, if we think about the positive mix impact in the Q1, I mean, how much of the slight step down from 29.6% to 29.2% in the gross margin outlook for the Q2 is the reversal of that mix impact or is that really more of a back half phenomenon? Speaker 300:41:51It's both, right, but it's you'll see some of it in Q2 based on the sales that we did in the Q1 and then you'll see more of it later in the year. That's part of the reason for the step down margin. The other thing that we highlighted on the call, we still have a lot of homes to sell for the back half of the year. And so the point we were making is, it depends on how the demand environment holds up. If it does, that's good. Speaker 300:42:17If the market changed, you could see plus or minus depending on whether it's a positive change or a negative change. Speaker 1000:42:24Understood. Thank you, guys. Operator00:42:28Your next question comes from the line of Sam Reid with Wells Fargo. Please go ahead. Speaker 1100:42:35Awesome. Thanks so much guys for taking my questions. And thanks for the incremental color on April, especially the traffic detail. I mean, it definitely makes sense that the FinTechs buyer is a bit more ratepayment sensitive. But I wanted to drill down on this a bit more and maybe see if you had any perspective on traffic across other parts of your business that 60% is kind of active adult and move up. Speaker 1100:42:59And what you're seeing from that buyer cohort, if anything, as rates move? Speaker 200:43:05Sam, we don't we're not parsing the traffic data quite that finally for the purpose of this call. One other data point that I will tell you while we've seen traffic into the stores moderate over the last several days, traffic to the website has been incredibly strong. So, we still think that there's high buyer demand and desire for home ownership. Certainly, anytime there's rate fluctuations that can cause some disruption in buyer behavior. But we think the fundamental or the overall demand for housing remains incredibly strong and we're still in a very supply constrained environment. Speaker 200:44:00So the overall thesis about this has been a strong operating environment for the industry and this company And what's been a pretty high interest rate environment, we think the environment that we would expect for the balance of the year, we can continue to show success in that type of situation as well. Affordability is there's no question, it is the headwind that we'll continue to navigate for the balance of the year and we think we've got the tools to do that. Speaker 1100:44:36No, that's helpful. And then maybe switching gears here, it's been a little while since this topic has come up. But can you talk to your relationship with Invitation on the single family rental side? And give us an update on where things stand, perhaps how many homes you're looking to sell to them this year? Any color there would be great. Speaker 1100:44:52Thanks. Speaker 200:44:54Yes. We targeted when we kind of kicked off the philosophy or the strategy that we had on single family rental with Invitation Homes and we also partner with some other local single family rental operators as well. We've targeted to be somewhere around 5% of our total volume would go into the single family rental kind of channels. The current year, the closings that we have that will go into that pipeline are right kind of in that 5% range. Certainly, the interest rate environment currently I think makes it harder for the single family rental operators to underwrite their deals. Speaker 200:45:44We wouldn't expect that to necessarily be the case forever. But in the kind of right here and now a little harder to make those deals pencil for those SFR operators. It's part of the reason that we've said we want it to be part of our business, but not such an outsized component that it creates disruptions on how we operate. That's helpful. I'll pass it along guys. Operator00:46:18Your next question comes from the line of raved Jedrusich with Bank of America. Please go ahead. Speaker 1200:46:26Hi, good morning. Thanks for taking my questions. I was wondering if you could talk a little bit about on the cost side. What are you seeing today in terms of the cash costs for land and materials relative to what's flowing through your P and L? And what's kind of the outlook on the cost side? Speaker 300:46:51Well, certainly on the material side, it is pretty consistent. And as Jim highlighted, there are build cost per foot flat. The only thing where we're really feeling any pressure there is on OSB, which has run up a little bit. In terms of the land, we've highlighted that high single digit increase in lot cost. That is candidly continuing a theme that has been going on for a number of years and is likely to persist. Speaker 300:47:31I've often described it as a conveyor belt of land. And we have 3 years of lots that we buy at any or control at any one point in time. And they kind of roll on the most recent year falls off. Every new year coming on is a little bit more expensive and that's a combination of increased land cost and increased development cost. But we haven't seen a step change in that if that's really what you're focused on. Speaker 300:47:58So again, I think you can and should expect to see our lot costs going up for the foreseeable future. Speaker 1200:48:09Got it. That's helpful. And then just looking at the Q1 gross margin, can you just talk about the drivers of the quarter quarter the 70 basis points quarter over quarter step up? And then what was the upside to your initial guidance? Speaker 300:48:26Sorry, was that are you asking sequentially or year over year? Speaker 1200:48:30Sequentially. Speaker 300:48:32Yes. So you've got 70 basis points. Certainly, a part of that is going to be the strength of the relative to our guide of the strength of the market where for the spec homes that we sold, we got better pricing, which was a relative margin benefit over the Q4. And the other thing is the mix shift, not just in terms of geography, which we had highlighted, but on a sequential basis, we also had a mix shift towards move up, which has this higher margin profile relative to first time, which is where the margin came from. They have I hate to use this, but there is mix and there's a couple of different mixes going on. Speaker 300:49:19But when you're looking at the sequential margin performance, certainly it's the strength of the market relative to what we thought coming into it. And also it's a little bit more move up, which has a higher margin profile for us. Speaker 1200:49:32Great. Thank you. Operator00:49:37Your next question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead. Speaker 1300:49:45Hi. Thanks for taking my questions. I'm going to stick with margins. Bob, you kind of alluded to this. It's a tricky time when you've just had this great move. Speaker 1300:49:56You're maybe just on the front end of seeing some traffic impacts, but you're having to give guide out a few quarters. And so I appreciate that there's still some uncertainty when you've got a third of your full year closings yet to be sold. So maybe just talk through the assumption for flat incentives against this move in rates. Just talk about kind of why that was why that is kind of baseline assumption or if it just felt like kind of right placeholders and matches kind of what your backlog margins look like today? Maybe just a little more detail on how you went through this process at kind of an odd time when the rate move just happened? Speaker 300:50:43Yes, it's interesting. I'd refer back to something Ryan offered, which is that affordability is still a challenge. And so against that backdrop, our expectation is that we will need to continue to incentivize folks. And the predominant way we're doing that today is through our national commitments and some sort of rate band support. So our expectation is that that continues. Speaker 300:51:09That was our expectation coming into the year. In the Q1, you all have heard us say, it was 6.5% again, just like the Q4, that's roughly $35,000 $40,000 a house. In a world where rates are actually trending back up, I think that we're going to need to continue to support that. So it's a little bit challenging to your point, but I think on balance, our expectation is that's where we're going to need to be to meet some of the affordability needs. It's one of the reasons we think you'll continue to see this strong market performance on a relative basis of new versus resale because we can offer those incentives. Speaker 1300:51:52And I guess as my follow-up more specifically that kind of implies that you'll get your advertised rates float up over time to match what the market move is and maintain your relative incentive. And so if you're allowing your rate to kind of float up, call it 40 basis points, 50 basis points from where it may have been a month or 2 ago. What have you done or seen in terms of kind of thinking about sensitizing some of the recent demand trends, particularly in your Sentex brand? I understand that it's not going to be a major potentially not as major a dynamic for your move up or active adult. But in your Centex brand, what's the sensitivity to a 40 basis point, 50 basis point move and rates that you've kind of seen or thought about? Speaker 300:52:50Certainly for that true entry level buyer, it's the game, right? And so we've got programs that offer them lower cost incentives, so we're giving them more rate support relative to others who have choices. And it's worth it to remember, we offer a national program, but there's a lot of detail in terms of what we can and actually do offer to people and what they want to kind of access in terms of our support. There will be some people with rates moving up that will literally fall off the ability to buy a home. That's not the case for our active adult move up buyers. Speaker 300:53:32And candidly for a lot of our Centex buyers, you look at our average sales price at 419 $1,000 in this most recent quarter. That's not typically your true entry level buyer. We're at a little bit higher price point. Our first time communities are typically a little bit closer in. And so I think it depends on who your buyer is. Speaker 300:53:56But to answer your question about will we vary our offering? The answer is yes, we have been. We are actively managing these national programs. We're buying commitments in relatively small amounts so that we don't get caught by market changes. And what it allows us to do is change our offering based on what the market is doing. Speaker 300:54:22So as the market's rates floated down, we moved our offer rate down somewhat to try and be responsive to to deliver a real savings versus the street rate that they can get on their mortgage. As rates tick back up, we're moving those rates up a little bit. It's an art, not a science. But I think what you can expect us to do is listen to the consumers in terms of what they need and seek to offer them programs that give them what they Speaker 1300:54:56Thanks, Bob. Appreciate that. Operator00:55:02Your next question comes from the line of Alan Ratner with Zelman and Associates. Please go ahead. Speaker 1400:55:10Hey, guys. Good morning. Thanks for squeezing me in here. Nice quarter. So, we'd love to get your updated thoughts on specs versus build to order. Speaker 1400:55:20I know you and others kind of ramp the spec production as cycle times re elongated and there was a premium or at least kind of that margin differential spec versus BTO was kind of smaller than it historically has been. I'm just curious if you're thinking about that any differently today with cycle times continuing to normalize and rates seemingly being higher for longer, sounds like maybe the Centex offering, which is predominantly spec, I would think, is maybe seeing more of that impact from the move in rates. So are you at the point now where you are kind of dialing back the spec starts a bit or do you still want to maintain the current mix of your business? Speaker 200:56:01We're pretty happy with where we're operating. And we look at a couple I mean the first thing we look at is what's the percentage of built to order versus spec sales. Right now it's running around fifty-fifty. And then we highlighted in Bob's prepared remarks, 40% of our WIP is spec and we've got a little bit higher than one final per active community. So, we pay attention to it closely. Speaker 200:56:35It's something that we spend a lot of time managing and being responsive to what we're seeing in the market. To your point, most of our spec, our Syntex business is spec. We certainly have a little bit of spec in the other two brands, but VoLTE and Del Webb tend to be more of a built to order kind of model and we're certainly responsive to that as well. So we're going to watch it, but in a higher interest rate environment, having available specs that you can more efficiently and effective apply the most powerful incentive to in the form of the forward mortgage rate commitments, you can do that better on spec inventory, which makes it more attractive. So you'll probably see us stay pretty close to where we're at. Speaker 1400:57:25Great. Appreciate your thoughts there, Ryan. And then pivoting to kind of the incentive environment, I think obviously you guys certainly made the right call by not chasing the market lower in the Q4 based on your performance this quarter. It sounds like from your guide for flattish incentives, you're not expecting to have to ramp a discount says the selling season kind of moves into its later stages. But what is the sensitivity you're looking at there? Speaker 1400:57:53How much longer will the more recent, I guess, softer traffic trends or maybe sales activity, how long would that have to persist before you would sit there and say, you know what, we need to maybe increase those incentives a little bit to bring up the sales pace? Is it a few months? Is it kind of getting past the peak of the selling season and you're sitting on more inventory than you'd like? What's the decision process there look like? Speaker 200:58:20Yes, Alan. We look at sales rates every single day. It's one of the first emails that I look at is what it sales for the prior day come in at and we look at qualitative and quantitative feedback that we get from our field operations and going through that decision making process. What I can tell you is, the change in rate never mind what it was and never mind what it's going to just the mere fact something changed. We've seen that causes in buyer behavior over the last 24 months. Speaker 200:59:02Anytime there's been a step change in rate and the media cycle that goes with it, that certainly has a pretty profound impact on buyer behavior. Time does seem to cure it. The only thing that I would continue to kind of caveat and put out there is that affordability continues to be a real issue. And so, we've got to balance the change there. We think one of the things that we're going to continue to do is pay attention to what the headline rate is. Speaker 200:59:41And Bob talked about that a few questions ago. Our national mortgage rate incentives have got the flexibility to move based on what the market is doing. So, we still think we can have a compelling offer out there relative to the street rate that doesn't necessarily cost us a whole bunch more relative to what we're currently paying. The last piece Alan is we're going to keep our production machine moving. We are a production builder and we're going to do that in a way that we think optimizes kind of return. Speaker 201:00:20So, if there are price changes or discount changes that ultimately have an impact on affordability that allow us to continue to turn the asset and keep the market share that we have, we'll definitely do that. Speaker 301:00:38Thanks a Speaker 101:00:38lot for the pass guys. Appreciate it. Operator01:00:45We have reached the end of the call and we'll take our final question from Ken Zener with Seaport Research Partners. Please go ahead. Speaker 701:00:56Good morning, everybody. Speaker 101:00:58Thanks, Ed. Speaker 701:01:01Wonder if you could just give some context on the regional comments you made. And I want to narrow it down to Florida because it's a segment that obviously generates quite a bit of your EBIT. Can you within Florida talk about how that existing market supply rising affected, let's say, the Centex 1st year move up brands realizing Orlando is different than coastal markets, but it's such a big market for you guys profitability wise. You can maybe give a little color related to the margin swings, you kind of seeing with those trade up buyers entry within markets that are seeing it pick up in inventory specific to Florida? Thank you. Speaker 201:01:50Yes. Ken, I want to make sure that I understood kind of the full question. Maybe I'll give you a little bit of Florida commentary and then if there's more follow-up, I'll let you ask that. Florida is a tremendous part of our business. We're in every nearly every major housing market there, save Miami. Speaker 201:02:15And a big part of our business there tends to be focused on move up and age targeted. We have some entry level business in our Tampa and Orlando businesses, but the other big markets are predominantly move up in H targeted. We get a little bit of move up in Jacksonville as well or a little bit of entry level on Jacksonville as well. So really strong business, a lot of job relocation there, a lot of folks that want to be there because they've got flexible work arrangements that allow them to work from home or work from elsewhere. The headwinds in Florida are definitely affordability. Speaker 201:03:01We've seen strong price appreciation in most Florida markets. And then the other kind of headwind that you've got there is around property taxes and insurance. So certainly those things kind of play into that, but Florida continues to be a big part of our business and a real bright spot for our business as well. Speaker 701:03:26That was sufficient. Thank you very much. Operator01:03:34I will now turn the conference back over to Jim Zuma for closing remarks. Speaker 101:03:38Great. Appreciate everybody's time today. We're around the remainder of the day for any follow-up questions and we look forward to speaking with you at various upcoming conferences and or on our next quarter's earnings call. Thank you for your time. Operator01:03:52This concludes today's call. You may now disconnect.Read moreRemove AdsPowered by Conference Call Audio Live Call not available Earnings Conference CallPulteGroup Q1 202400:00 / 00:00Speed:1x1.25x1.5x2xRemove Ads Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) PulteGroup Earnings HeadlinesPulteGroup (NYSE:PHM) Given New $100.00 Price Target at BarclaysApril 9 at 4:05 AM | americanbankingnews.comPulteGroup (NYSE:PHM) Hits New 1-Year Low on Analyst DowngradeApril 9 at 1:37 AM | americanbankingnews.comTrump Treasure April 19Thanks to President Trump… A $900 investment across5 specific cryptos… Could gain 12,000% so quickly that, just 12 months later…April 9, 2025 | Paradigm Press (Ad)PulteGroup price target lowered to $100 from $117 at BarclaysApril 8 at 4:32 PM | markets.businessinsider.comS&P 500 Gains and Losses Today: Homebuilder Stocks Fall as Pricing Pressure LingersApril 8 at 6:29 AM | msn.comWhat You Need To Know Ahead of PulteGroup’s Earnings ReleaseApril 7 at 11:31 AM | msn.comSee More PulteGroup Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like PulteGroup? Sign up for Earnings360's daily newsletter to receive timely earnings updates on PulteGroup and other key companies, straight to your email. Email Address About PulteGroupPulteGroup (NYSE:PHM), through its subsidiaries, primarily engages in the homebuilding business in the United States. It acquires and develops land primarily for residential purposes; and constructs housing on such land. The company also offers various home designs, including single-family detached, townhomes, condominiums, and duplexes under the Centex, Pulte Homes, Del Webb, DiVosta Homes, John Wieland Homes and Neighborhoods, and American West brand names. In addition, the company arranges financing through the origination of mortgage loans primarily for homebuyers; sells the servicing rights for the originated loans; and provides title insurance policies, and examination and closing services to homebuyers. 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There are 15 speakers on the call. Operator00:00:00Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the PulteGroup, Inc. Q1 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Operator00:00:15After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Jim Zumer. You may begin. Speaker 100:00:34Thanks, Gene. Good morning. Let me welcome everyone to today's call. We look forward to discussing Polter Group's outstanding Q1 operating and financial results, the period ended March 31, 2024. I'm joined on the call today by Ryan Marshall, President and CEO Bob O'Shaughnessy, Executive Vice President and CFO Jim Osovsky, Senior VP, Finance. Speaker 100:00:57A copy of our earnings release and this morning's presentation slides have been posted to our corporate website atpulsigroup.com. We'll post an audio replay of this call later today. I want to alert everyone that today's presentation includes forward looking statements about the company's expected future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation slides. Speaker 100:01:27These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan. Ryan? Speaker 200:01:36Thanks, Jim, and good morning. As you read in this morning's press release, PulteGroup reported record first quarter results across many of our key financial metrics From top line revenues of $3,800,000,000 gross margins of 29.6 percent to bottom line earnings of 3 point $1.0 per share, it was an exceptional quarter. These strong first quarter results helped to drive a return on equity of 27.3% for the trailing 12 month period. Our strong first quarter results reflect long term strategic planning and a disciplined capital allocation process that have underpinned PulteGroup's success for more than a decade. I would suggest that another driver of our record Q1 results are decisions we made in the Q4 of last year, decisions that I think are emblematic of the balanced approach we take to running our business and to delivering high returns. Speaker 200:02:34On our last earnings call, we talked about decisions we made in the Q4 of last year to not lower our prices in a chase for volume. As you will recall, demand in the Q4 of 2023 had started slowly, but improved as interest rates begin to moderate. As we made the decision to push incentives aggressively as the quarter progressed, we likely could have delivered higher closing volumes in 2023. With demand improving in the Q4, we elected to hold our pricing and have had more inventory available for the 2024 spring selling season. The result of this decision is that we were in a position to sell and close more homes in the Q1 of 2024 and at higher margins. Speaker 200:03:22That's what you see in our Q1 results. Close ins and gross margins above our guide as demand dynamics allowed us to sell more homes with better net pricing. When buyer demand is rising, we're often asked how many more homes we can sell Given the value we place on entitled lots and our focus on driving high returns, more volume is not the only answer as we work to balance pace and price to drive high returns. Within our operating model, stronger demand provides choices. We can sell more houses or we can raise prices or as was the case in the Q1, we can do both. Speaker 200:04:02What we experienced in the Q1 is that areas of strong demand last year such as the Southeast, Florida and Texas continued to perform well into 2024. Even more positive is that areas that had some struggles in 2023, notably Arizona, California and Nevada were much improved in 2024. Consistent with the favorable conditions in the Q1, almost all our markets displayed pricing dynamics that were stable or improving, which allowed us to raise net pricing in more than half our communities. As you've heard us say many times, our pricing decisions are made with the goal of delivering high returns and the best overall business outcomes. Depending upon the community and the buyers' wants and needs, we may have raised base prices or lowered incentives. Speaker 200:04:56The result being that net pricing in the quarter across many of our markets was up between 1% 5%. The impact of these actions on our business performance is powerful. As Bob will discuss, we are increasing guidance for both full year closings and gross margins. Against generally favorable demand conditions, the supply of available housing remains tight. We have the long term structural issue resulting from a decade of under building that has the country short approximately 4,000,000 housing units. Speaker 200:05:31At the same time, the available inventory of existing homes for sale continues to be low as homeowners remain locked into their low mortgage rates. Life happens, so we are seeing some additional existing homes come to market, but the numbers remain well below historic rates. As a homebuilder, this is a great operating environment as we are supplying a product that a lot of people need and want. I appreciate, however, that our country's housing shortage can create hardships for today's consumers as the lack of supply keeps housing prices high. In fact, some of our recent buyers said that they made the decision to buy now because they couldn't wait any longer for rates to roll back. Speaker 200:06:16In a market where home prices are high and because of limited inventory, they will likely continue moving higher. Our company's ability to offer targeted incentives, particularly mortgage rate buy downs is a powerful tool that can help bridge the affordability gap. For example, in the Q1 approximately 25% of our homebuyers used our National Rate Program. In a world where the consensus is that interest rates will be higher for longer, our interest rate incentives likely become an even greater competitive advantage, especially relative to the existing home seller. Higher interest rates create additional challenges for today's homebuyers that we appreciate that rates are moving higher because of a resilient economy and a strong job market. Speaker 200:07:04Given these conditions, we are optimistic about 2024 and Polti Group's ability to continue delivering strong financial results. Now let me turn the call over to Bob for a review of our Q1 results. Bob? Thanks Ryan and good morning. Speaker 300:07:20As Ryan noted, the company delivered exceptional operating and financial results in the quarter, which have us well positioned to realize outstanding financial performance throughout 2024. In the Q1, we reported home sale revenues of $3,800,000,000 which represents an increase of 10% over the prior year's Q1. Higher revenues in the period were driven by an 11% increase in closings to 7,095 homes, partially offset by a 1% decrease in average sales prices to $538,000 The lower closing price compared with the Q1 of last year reflects a shift in the geographic mix of homes closed as we realized relatively higher closings from our Southeast and Florida markets with more modest increases in our higher priced Western markets. Closings in the quarter came in above our guide as we had available spec inventory to meet the strong buyer demand we experienced in the period. As Ryan highlighted, by choosing not to chase volume in last year's Q4, we had additional inventory in Q1 that we were able to sell and close with better margin due to the improving buyer demand activity in the quarter. Speaker 300:08:31Our spec production is predominantly within our first time buyer communities. So on a year over year basis, we realized increased closings from first time buyers. In the quarter, our closing mix included 41% first time, 36% move up and 23% active adult. In the Q1 of last year, the mix of closings consisted of 38% first time, 36% move up and 26% active adult. Reflecting the favorable demand conditions we experienced in the Q1, net new orders increased 14% over last year to 8,379 homes. Speaker 300:09:09In the quarter, we realized a year over year increase in gross orders and a reduction in cancellation rate. Cancellations as a percentage of starting backlog fell to 10.1%, down from 12.7% in the Q1 last year. Average community count for our Q1 was 931, which is an increase of 6% over the prior year and in line with our guidance for year over year community count growth of 3% to 5%. The resulting absorption pace of approximately 3 homes per month for the quarter was above our historic average for the period, excluding the pandemic impacted years of 2021 2022. I would also like to highlight that orders in the quarter were higher across all buyer groups, which is another sign of the overall strength of the market. Speaker 300:09:56More specifically, net new orders among first time buyers increased 8%, move up increased 22% and active adult increased 12%. Consistent with earlier comments, the large increase in orders among move up buyers was influenced by improving market conditions in the West, where our business mix is much more heavily weighted towards move up. Given this strong start to our spring selling season, our quarter end backlog increased to 13,430 homes with a value of $8,200,000,000 We started approximately 7,500 homes in the quarter and ended the period with a total of 17,250 homes under construction. Our production pipeline includes approximately 7,000 or 41 percent spec homes, of which 1337 are completed. We are operating just above our target of 1 finished spec per community, but believe carrying a few more finished specs is the right strategy, given buyers' preferences and the fact that we are still in the more active spring selling season. Speaker 300:11:02Given the units we have under construction and their stage of production, we expect to close between 7,800,8200 homes in the 2nd quarter. With the strong start to the year in both quarters and closings, we are raising our guide for full year closings to approximately 31,000 homes. This would represent an 8% increase over 2023, which is the higher end of our long term goal of growing our closing volume between 5% 10% annually. Closings in the Q1 had an average sales price of $538,000 which was slightly below our guide for pricing of $540,000 to $550,000 Relative to our guide, pricing in the quarter was influenced by the geographic mix of closing, along with a higher volume of spec homes closed in the period. As we move through the remainder of the year, we expect the mix of homes closed in each quarter will result in ASPs consistent with our prior guide of $540,000 to $550,000 For the Q1, we reported a gross margin of 29.6%, which is an increase of 50 basis points over the Q1 of 2023 and a sequential gain of 70 basis points from the Q4 of 2023. Speaker 300:12:17At 29.6%, our first quarter gross margin was also notably higher than our guide. Beyond Ryan's comments that we are achieving high returns by actively managing both pace and price, mix had an impact on our reported Q1 margins. Higher demand increased in the quarter as the quarter advanced, which allowed us to sell and close more homes in the period than forecasted. On a relative basis, more of these closings occurred in our higher margin markets in the Southeast of Florida, resulting in a meaningful increase in reported gross margins for the quarter. Based on Q1 sign ups and the composition of our backlog, we would expect the geographic mix of closings to be more balanced as we move to the remainder of the year. Speaker 300:13:01That being said, we're raising our gross margin guide for the remainder of 2024. We had previously guided to quarterly gross margins of 28% to 28.5%, but we now expect gross margins in the 2nd quarter to be approximately 29.2%. Based on current backlog, we'd expect gross margins in the 3rd and 4th quarters to be approximately 29%, but we still have homes to sell and close. So demand conditions over the coming months will impact the results we can ultimately report. Beyond buyer demand and near term pricing dynamics, the gross margin guide for the remainder of 2024 also reflects expected changes in the geographic mix of homes we expect to close. Speaker 300:13:44Given recent sign up trends, we anticipate closing more homes in our West region, which currently have a lower relative margin profile due to the fact that we adjusted pricing in these markets over the course of 2023 to achieve appropriate sales basis. Looking at our costs, reported SG and A in the Q1 was $358,000,000 or 9.4 percent of home sale revenues. As noted in our press release, our reported SG and A for the period includes a $27,000,000 pretax insurance benefit. SG and A in the Q1 of 2023 was $337,000,000 or 9.6 percent of wholesale revenues. Consistent with our previous guide, we continue to expect SG and A expense for the full year be in the range of 9.2% to 9.5% of home sale revenues. Speaker 300:14:33Based on normal seasonality, we expect to realize increased overhead leverage as we move through the remaining quarters of the year. Our Financial Services operations reported pretax income of $41,000,000 for the Q1, which is an increase of almost 200% from last year's pretax income of 14 dollars 1,000,000 The increase in Q1 pre tax income was driven by better market conditions across our Financial Services platform. Financial Services also benefited from higher capture rates across all business lines, including an increase to 84%, up from 78% last year in our mortgage operations. As noted in this morning's press release, in the Q1, we completed the sale of a joint venture that resulted in a gain of $38,000,000 On our income statement, this gain was recorded in equity income from unconsolidated entities. Our reported Q1 pre tax income was a period record of $869,000,000 an increase of 24% over last year. Speaker 300:15:35Against that, we recorded tax expense of $206,000,000 which represents an effective tax rate of 23.7%. Our reported Q1 tax rate was impacted by energy tax credits and stock compensation deductions recorded in the period. For the balance of the year, we continue to expect our tax rate to be in the range of 24% to 24.5%. In total, our reported Q1 net income was $663,000,000 or $3.10 per share, compared with prior year reported net income of $533,000,000 or $2.35 per share. Earnings per share in our most recent quarter benefited from a 6% reduction in share count compared with the prior year as we continue to systematically repurchase our stock. Speaker 300:16:23Moving past the income statement, we invested approximately $1,100,000,000 in land acquisition and development in the Q1. Consistent with our recent land activity, 60% of our land spend in the quarter was for the development of our existing land assets. Our Q1 land spend keeps us on track with our plan to invest approximately $5,000,000,000 in land acquisition and development for the full year, of which we continue to expect about 60% will be for development, with the remainder for the acquisition of new land positions. We ended the quarter with approximately 220,000 lines under control, of which 51% were healthy option. The purchase of several large land positions in combinations with decisions not to move forward with the few option transactions during the quarter lowered our lot option percentage from the end of 2023. Speaker 300:17:14I would highlight, however, that 74% of the lots we have approved in this most recent quarter were under option. As our first quarter numbers indicate, we continue to work toward our multiyear goal of controlling 70% of our land pipeline via option. Looking at our community count, we continue to expect average community count in 2024 to increase 3% to 5% in each quarter over the comparable prior year period. Along with investing in our business, we continue to return capital to shareholders. In the quarter, we repurchased 2,300,000 common shares at a cost of $246,000,000 for an average price of $106.73 per share. Speaker 300:17:56In the quarter, we also opportunistically purchased approximately $10,000,000 of our outstanding bonds. After allocating approximately $1,400,000,000 to investment and the return of funds to shareholders, we ended the Q1 with $1,800,000,000 of cash. Taking all of this into account, our quarter end gross debt to capital ratio was 15.4%, while our net debt to capital ratio was only 1.7%. Now let me turn the call back to Ryan for some final comments. Speaker 200:18:28Thanks, Bob. As you would expect, given the strength of our Q1 results, buyer interest was high in the period as the order of traffic into our communities due to the recent increases in interest rates, particularly within the SunTEX brand. While the change is relatively modest and based on a limited number of days, consumer feedback suggests that higher rates are causing some buyers to evaluate the timing of their activity due to the volatile interest rate environment. We'll continue to monitor how buyers respond to changes in the rate environment and are prepared to adjust pricing or incentives to ensure we are appropriately turning assets. During our last earnings call, we talked about the opportunity for Pulte Group to grow its business 5% to 10% annually. Speaker 200:19:23Given the lengthy land investment process, organic change in this industry takes time to accomplish, but we have been systematically planning and positioning to deliver against this goal for the past few years. I think that the company's efforts are reflected in the allocation of capital into growing our business. Including our Q1 spend since 2021, our operating teams have invested $14,000,000,000 in land acquisition and development with plans to invest another $5,000,000,000 in 2024. Along with the land, we have been investing in our people and working to ensure the needed trade capacity is available to support our expanding operations. I'm proud to say that we've accomplished this while adhering to the same underwriting hurdles and investment disciplines, which have been the cornerstone of PulteGroup for the past decade. Speaker 200:20:16Such discipline has allowed PulteGroup to more consistently grow its earnings, drive substantial cash flow from operations and deliver high returns. And we've accomplished this while maintaining the superior build quality and customer experience which PulteGroup homebuyers have come to expect. Before opening the call to questions, I want to take a minute to recognize and celebrate our team for once again being named a Fortune 100 Best Company to Work For. What makes this recognition so important and gratifying is that it's based on feedback from all of our employees. This marks PulteGroup's 4th consecutive year on the list and is a testament to the culture of personal caring and professional development that we work to maintain. Speaker 200:21:02I am proud to lead such an organization that is committed to taking care of our customers and each other. Let me now turn the call back to Jim Zumer. Speaker 100:21:10Great. Thanks, Ryan. We're now prepared to open the call for questions, so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Dean, if you would explain the process, we will get ready to get started with Q and A. Operator00:21:28Thank Your first question comes from the line of Stephen Kim with Evercore ISI. Please go ahead. Speaker 400:22:05Yes, thanks very much guys. Impressive results and appreciate all the guidance that you provided. I guess my first question relates to your longer term targets with respect to land. Ryan, I think the last time I asked you this question, I was curious about sort of where your long term target is. And I think I stated it in terms of years owned. Speaker 400:22:29I understand that you want to have about 7 years controlled with about 30% options over the long term. That would put you at about a little over 2 years of owned land. You're quite a bit above that now. And so my question is, am I thinking about that right? Is your long term target for own land a little over 2 years owned? Speaker 400:22:52And over what time span do you think we should expect you to migrate to that if that is in fact your target? Speaker 200:22:59Yes, Stephen, thanks for the question. I think your overall target of 7 years control is about right. And then we stated our long term target of optionality at 70%. We do think it will be a multi year journey in getting there. And that's really driven by the fact, Stephen, that we want to do it in a very organic natural way that drives ideal economics for each individual transaction. Speaker 200:23:31We highlighted in the prepared remarks, Bob did, that in the quarter, 74% of the deals that we approved were under option. We think that type of activity over the next several years will have us arrive at our long term target in a very natural way. When we do that, to your point, we'll be right around something just over 2, 2.5 years of owned land at that point. Speaker 400:24:01Yes. And thanks for that. And then as you progress in that manner, it will unlock some additional cash flow in addition to your net earnings. And so I wanted to turn to cash flow next. I think you gave a guidance, a guide for cash flow from operations for the full year previously at about $1,800,000,000 You've taken up you had a great 1Q, You've taken up your outlook for both volume and gross margin and, let's just say operating margin for the year. Speaker 400:24:31Can you give us an update on where you're thinking cash flow from operations may come in for the full year in light of those changes? And maybe even more importantly, what should we expect in terms of deployment into dividends and repurchases? I noticed this quarter, for example, like it was pretty much buybacks was pretty much equal to cash flow from operations and your leverage is pretty much stabilized in low single digits. So is it right to think that maybe whatever you generate in cash flow from operations with a little bit of flex quarter to quarter, but in general that's about what you would deliver in terms of repayment sorry, repurchases and dividends? Speaker 300:25:09Yes, Stephen, it's Bob. Good morning. We didn't update the guide on cash flow. It's early in the year. We're thinking about what we're investing in the business. Speaker 300:25:21You can see if you look at the balance sheet just since the end of the year, we're up about $300,000,000 in investment in the balance sheet, roughly half land, half house. And so to your point, we certainly expect with incremental volume and incremental margin that will generate a pretty healthy amount of cash. Some of that will be invested to meet that 5% to 10% growth that we've talked about. So more to come on that as the year progresses certainly, but I think the bias would be for more cash from operations. And to your point on capital allocation, I think we've been pretty consistent, right, for the last 10 years since we laid out our strategy for capital allocation. Speaker 300:26:10A, invest in the business, pay a dividend that grows with earnings, buy back stock with excess capital against a modest debt profile. Obviously, the leverage is lower than we had anticipated. We look at liability management as part of our capital allocation. So I don't know that I'd go so far as to say cash flow from operations will equal repurchase activity. I think we've been pretty clear we're going to report the news on what our repurchases are going to be. Speaker 300:26:45But we obviously in a world where we're generating cash at that level, particularly if we have less invested in the balance sheet as we move towards that 70%, it will free up capital and we'll work through what to do with that capital as we generate it. Speaker 400:27:03Okay. Well, we'll be staying tuned. Thanks a lot guys and congratulations on the strong results. Speaker 100:27:08Thanks, David. Thanks, David. Operator00:27:12Your next question comes from the line of Matthew Bouley with Barclays. Please go ahead. Speaker 500:27:19Good morning, everyone. Thank you for taking the questions. So in the Q4, you as you mentioned, sort of didn't raise incentives to chase volume. Now speaking to rates being higher for longer, eventually we'll be past the peak of the spring demand and all that. So I guess going forward, how are you thinking about that trade off with incentives from here given where your margins are? Speaker 500:27:46Is there an opportunity to perhaps trade a little bit of that margin to drive better growth obviously in the context of supporting returns? Thank you. Speaker 200:27:56Matt, good morning. It's Ryan. Thanks for the question. We've said in the past, we're not going to be margin proud and I would tell you that remains true. As we highlighted in some of my prepared remarks today, we believe our operating platform and how we've positioned our specific community investments we're in a great position to command excellent pricing, get pace and price, which you saw in this most recent quarter. Speaker 200:28:25We given the interest rate environment that we are clearly going into higher for longer, we've got the ability to use the very powerful tool of forward mortgage rate commitments that allow us to offer a pretty attractive incentive program. Right now, we're at 5.75% nationally and about 25% of our buyers are taking advantage of it. The other thing I'd highlight is that 60% of our business is move up and active adult, which tends to not be quite as rate sensitive as the first time buyer. With that first time buyer that's where predominantly our Centex brand predominantly first time buyers and we see a higher percentage of those buyers take advantage of the 4 great commitments. The last piece, Matthew, that I'd probably point out is that our guide for the balance of the year assumes that the incentive load that we currently have, which on the most recent quarters closings was running at 6.5%, we've assumed that that stays flat going forward. Speaker 500:29:40Got you. Okay. Thank you for that, Ryan. The second one, I wanted to move to the topic of land costs and land inflation. I think last quarter, you had spoken to the potential for mid to upper single digit inflation in land, but maybe wasn't totally clear on exactly when that would impact your gross margin. Speaker 500:30:01I'm curious, can you kind of walk us through the timing of sort of land costs flowing into your gross margin? And then kind of what are you seeing in real time in the land market? Has the market started to decelerate at all? Or is it kind of still kind of chugging along at that mid to upper single digit rate? Thank you. Speaker 300:30:21Yes, Matt, it's Bob. That mid to high single digit increase in our lot costs was in our Q1 and is expected to continue through the balance of the year. So when we gave the margin guide, we had pretty good visibility into our lot costs because those are lots typically on the ground already. So it's there. In terms of the current market conditions, it's still competitive out there. Speaker 300:30:51I've said this before, land hasn't gone on sale and slight variations in market typically don't result in prices declining. The market is super efficient on the way up, a little bit sticky on the way down. So for quality parcels, it's competitive. Speaker 500:31:16Got you. All right. That's clear. Thanks, Bob. Good luck, guys. Operator00:31:23Your next question comes from the line of Carl Reichardt with BTIG. Please go ahead. Thanks. Speaker 600:31:30Good morning, guys. I think it's the first time since mid-twenty 20 when you haven't addressed construction cycle times. So I thought at least I'd ask across the markets, products and geographic markets, our cycle times effectively normalized now for you or are we still a little bit longer than you were pre COVID? Speaker 200:31:53Good morning, Carl. Thanks for the question. We saw a couple of days of cycle time improvement in the most recent quarter. So we were at 128 days, down from the 130 that we ended the Q4 of 2023. And we are still on track and still are targeting being at 100 days by the end of the year. Speaker 200:32:17When we look deeper at our Q1 numbers, we had some long cycled closings that had been in production for a long time and many cases were multifamily and condo buildings that we think kept the overall number that I just shared with you of 128 days a higher a little bit higher than what we think is our actual run rate at this point. When we look at a lot of our markets, we're already back to kind of pre COVID cycle times of even sub-one hundred days. So we've made a lot of progress in a lot of places. We have a few markets that are a little stickier, where we're working hard to get cycle times back to where we'd like them to. But by and large, we still feel that the target we've set of 100 days is very much in reach. Speaker 600:33:13Great. Thank you, Brian. And then you talked a little bit about existing home inventory creep that I think we're seeing in some of the data. If we dig into that, Ryan, if you can dig into that, is this inventory that you'd expect would be effectively a net neutral impact of the demand supply? In other words, houses to move elsewhere versus vacant capacity, meaning investors or second homeowners who are putting their homes on the market effectively vacant, Because I think there's an important difference between the 2. Speaker 600:33:44So to the extent that you know, what are you seeing? Thanks. Speaker 200:33:48Yes. Outside, there might be I'm sure there's some markets, Carl, where there is vacant investor driven inventory that you could characterize as new supply. The majority of the markets where we operate, we think any existing resale inventory that does come to market, those are buyers that are going to go buy another home somewhere else. So we think it's largely neutral on the overall supply side. Speaker 600:34:19Thank you, Rod. Thanks all. Speaker 200:34:21Thanks, Howard. Operator00:34:25Your next question comes from the line of Anthony Pettinari with Citi. Your line is open. Speaker 200:34:33Good morning. Speaker 300:34:34Good morning. Speaker 700:34:34I was wondering if you could Speaker 800:34:37talk about maybe the potential impact of the NAR settlement on your business or maybe the broader industry and any kind of potential secondary impacts to Pulte? Speaker 200:34:51Yes. Anthony, we're watching it closely as I think a lot of the real estate world is. Where we think it ultimately goes is it will create better transparency around the fee structure. And we'll likely change over time the way that the providers of those services charge and the users or the consumers of those services ultimately pay. So, we realtors are important part of our business and over probably 60% of the sales that we have include a buy side realtor involved. Speaker 200:35:36So, we certainly support the realtor community. They've been an important part of our company for a long time. But we are watching the way that the landscape there will certainly change. Speaker 800:35:50Okay. And then you talked about stronger trends regionally, I think in Nevada, Arizona, California, if I got that right. Is there anything particularly driving that in your view? And maybe you can just talk about the kind of long term attractiveness of that region as you kind of build out the community count? Speaker 200:36:12Yes. A couple of things happened there. Was a market that saw a lot of price appreciation in the COVID years. Affordability, we think got strained for certain. Last year, we did a fair amount of price discovery as we work to right size what our go to market price was in those markets. Speaker 200:36:38That combined with I think a general improvement in buyer sentiment contributed to the lights coming back on in the Western markets. So, some of the markets that we'd highlighted pretty consistently last year, Seattle, Northern California, Southern California, Las Vegas, Phoenix, those were strong contributors to our overall results in this most recent quarter. We'd expect that to continue. Bob highlighted that the relative margin contribution out of those markets will be lower than some of the other parts of our business. We've incorporated that incremental volume that we're getting at slightly lower margin contribution profile in the archive. Speaker 200:37:26So we're look, we're pleased that those markets are contributing. We got a lot of capital invested there. They're big housing markets. People want to live there for a number of reasons, climate jobs, etcetera. So we're pleased that they're doing well. Speaker 200:37:47Okay. That's helpful. I'll turn it over. Operator00:37:54Your next question comes from the line of Michael Rehaut with JPMorgan. Please go ahead. Speaker 900:38:01Hey guys, good morning. This is Andrew Ozzie on for Mike. Quick one, I just wanted to drill down if I could on the demand trends you've been seeing over the last few months, just given the change of rates and some concerns in the market. I'd love any kind of progression you saw in the quarter and here into April? Speaker 200:38:22Yes. It was a strong quarter, strong Q1. We highlighted that we saw some trends that were even stronger than normal seasonality. The 1st few weeks of April have continued to show signs of strength. We did highlight that as we look at traffic, new traffic that's coming into the stores, while a limited number of days in that data set, we are seeing a small downturn that we think is reflective of the change in the rate environment. Speaker 200:38:59So we're going to keep an eye on it. We don't at this point think it's anything to be too alarmed about, but we're watching Speaker 900:39:10it. Great. Thank you. And then I guess secondly on the material costs, how have these kind of trended and any kind of detail and how that's reflected in your 2Q gross margin, kind of your assumptions for sticking brick costs? Speaker 300:39:28Sure. Build costs, they were stable in the Q1, about $80 a square foot for base house. That's flat with Q4 of 2023. It's actually down from $84 a square foot in the Q1 of last year. As we look at 2024, we expect cost inflation on labor materials to be pretty manageable with low single digit increases, and we factor that into our guide. Speaker 900:39:56Thank you so much. I appreciate it. Congrats on the quarter. Speaker 100:39:59Thank you. Thank you. Operator00:40:03Your next question comes from the line of John Lovallo with UBS Financial. Please go ahead. Speaker 1000:40:10Good morning, guys. Thank you for taking my questions as well. So the revised full year gross margin outlook is about flat year over year. And I think previously you had talked about pricing being kind of flat year over year. That was a little bit better in the Q1 for sure. Speaker 1000:40:29Mid to high single digit land cost depreciation, kind of low single digit construction cost appreciation. Just curious how you guys are managing that to actually achieve a flat year over year gross margin in that kind of cost environment with what had previously been expected to be sort of flattish pricing? Speaker 300:40:49Yes, I think it's the strength of the market, John. We highlighted that we're raising prices in a number of our communities that 1% to 5%. That's really the driver combined certainly in this Q1 with the mix differential that we had highlighted. Speaker 1000:41:06So is it pricing just pricing and mix a little bit better than previously expected? Speaker 300:41:11Yes. And then on the mix, just to be clear, John, the mix was really a Q1 issue. We think that smooths out based on the relative strength of volume that Ryan highlighted out West. So we'll get more of that relatively lower margin profile in the back half of the year. Speaker 1000:41:31Okay. And that was sort of my follow-up is, if we think about the positive mix impact in the Q1, I mean, how much of the slight step down from 29.6% to 29.2% in the gross margin outlook for the Q2 is the reversal of that mix impact or is that really more of a back half phenomenon? Speaker 300:41:51It's both, right, but it's you'll see some of it in Q2 based on the sales that we did in the Q1 and then you'll see more of it later in the year. That's part of the reason for the step down margin. The other thing that we highlighted on the call, we still have a lot of homes to sell for the back half of the year. And so the point we were making is, it depends on how the demand environment holds up. If it does, that's good. Speaker 300:42:17If the market changed, you could see plus or minus depending on whether it's a positive change or a negative change. Speaker 1000:42:24Understood. Thank you, guys. Operator00:42:28Your next question comes from the line of Sam Reid with Wells Fargo. Please go ahead. Speaker 1100:42:35Awesome. Thanks so much guys for taking my questions. And thanks for the incremental color on April, especially the traffic detail. I mean, it definitely makes sense that the FinTechs buyer is a bit more ratepayment sensitive. But I wanted to drill down on this a bit more and maybe see if you had any perspective on traffic across other parts of your business that 60% is kind of active adult and move up. Speaker 1100:42:59And what you're seeing from that buyer cohort, if anything, as rates move? Speaker 200:43:05Sam, we don't we're not parsing the traffic data quite that finally for the purpose of this call. One other data point that I will tell you while we've seen traffic into the stores moderate over the last several days, traffic to the website has been incredibly strong. So, we still think that there's high buyer demand and desire for home ownership. Certainly, anytime there's rate fluctuations that can cause some disruption in buyer behavior. But we think the fundamental or the overall demand for housing remains incredibly strong and we're still in a very supply constrained environment. Speaker 200:44:00So the overall thesis about this has been a strong operating environment for the industry and this company And what's been a pretty high interest rate environment, we think the environment that we would expect for the balance of the year, we can continue to show success in that type of situation as well. Affordability is there's no question, it is the headwind that we'll continue to navigate for the balance of the year and we think we've got the tools to do that. Speaker 1100:44:36No, that's helpful. And then maybe switching gears here, it's been a little while since this topic has come up. But can you talk to your relationship with Invitation on the single family rental side? And give us an update on where things stand, perhaps how many homes you're looking to sell to them this year? Any color there would be great. Speaker 1100:44:52Thanks. Speaker 200:44:54Yes. We targeted when we kind of kicked off the philosophy or the strategy that we had on single family rental with Invitation Homes and we also partner with some other local single family rental operators as well. We've targeted to be somewhere around 5% of our total volume would go into the single family rental kind of channels. The current year, the closings that we have that will go into that pipeline are right kind of in that 5% range. Certainly, the interest rate environment currently I think makes it harder for the single family rental operators to underwrite their deals. Speaker 200:45:44We wouldn't expect that to necessarily be the case forever. But in the kind of right here and now a little harder to make those deals pencil for those SFR operators. It's part of the reason that we've said we want it to be part of our business, but not such an outsized component that it creates disruptions on how we operate. That's helpful. I'll pass it along guys. Operator00:46:18Your next question comes from the line of raved Jedrusich with Bank of America. Please go ahead. Speaker 1200:46:26Hi, good morning. Thanks for taking my questions. I was wondering if you could talk a little bit about on the cost side. What are you seeing today in terms of the cash costs for land and materials relative to what's flowing through your P and L? And what's kind of the outlook on the cost side? Speaker 300:46:51Well, certainly on the material side, it is pretty consistent. And as Jim highlighted, there are build cost per foot flat. The only thing where we're really feeling any pressure there is on OSB, which has run up a little bit. In terms of the land, we've highlighted that high single digit increase in lot cost. That is candidly continuing a theme that has been going on for a number of years and is likely to persist. Speaker 300:47:31I've often described it as a conveyor belt of land. And we have 3 years of lots that we buy at any or control at any one point in time. And they kind of roll on the most recent year falls off. Every new year coming on is a little bit more expensive and that's a combination of increased land cost and increased development cost. But we haven't seen a step change in that if that's really what you're focused on. Speaker 300:47:58So again, I think you can and should expect to see our lot costs going up for the foreseeable future. Speaker 1200:48:09Got it. That's helpful. And then just looking at the Q1 gross margin, can you just talk about the drivers of the quarter quarter the 70 basis points quarter over quarter step up? And then what was the upside to your initial guidance? Speaker 300:48:26Sorry, was that are you asking sequentially or year over year? Speaker 1200:48:30Sequentially. Speaker 300:48:32Yes. So you've got 70 basis points. Certainly, a part of that is going to be the strength of the relative to our guide of the strength of the market where for the spec homes that we sold, we got better pricing, which was a relative margin benefit over the Q4. And the other thing is the mix shift, not just in terms of geography, which we had highlighted, but on a sequential basis, we also had a mix shift towards move up, which has this higher margin profile relative to first time, which is where the margin came from. They have I hate to use this, but there is mix and there's a couple of different mixes going on. Speaker 300:49:19But when you're looking at the sequential margin performance, certainly it's the strength of the market relative to what we thought coming into it. And also it's a little bit more move up, which has a higher margin profile for us. Speaker 1200:49:32Great. Thank you. Operator00:49:37Your next question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead. Speaker 1300:49:45Hi. Thanks for taking my questions. I'm going to stick with margins. Bob, you kind of alluded to this. It's a tricky time when you've just had this great move. Speaker 1300:49:56You're maybe just on the front end of seeing some traffic impacts, but you're having to give guide out a few quarters. And so I appreciate that there's still some uncertainty when you've got a third of your full year closings yet to be sold. So maybe just talk through the assumption for flat incentives against this move in rates. Just talk about kind of why that was why that is kind of baseline assumption or if it just felt like kind of right placeholders and matches kind of what your backlog margins look like today? Maybe just a little more detail on how you went through this process at kind of an odd time when the rate move just happened? Speaker 300:50:43Yes, it's interesting. I'd refer back to something Ryan offered, which is that affordability is still a challenge. And so against that backdrop, our expectation is that we will need to continue to incentivize folks. And the predominant way we're doing that today is through our national commitments and some sort of rate band support. So our expectation is that that continues. Speaker 300:51:09That was our expectation coming into the year. In the Q1, you all have heard us say, it was 6.5% again, just like the Q4, that's roughly $35,000 $40,000 a house. In a world where rates are actually trending back up, I think that we're going to need to continue to support that. So it's a little bit challenging to your point, but I think on balance, our expectation is that's where we're going to need to be to meet some of the affordability needs. It's one of the reasons we think you'll continue to see this strong market performance on a relative basis of new versus resale because we can offer those incentives. Speaker 1300:51:52And I guess as my follow-up more specifically that kind of implies that you'll get your advertised rates float up over time to match what the market move is and maintain your relative incentive. And so if you're allowing your rate to kind of float up, call it 40 basis points, 50 basis points from where it may have been a month or 2 ago. What have you done or seen in terms of kind of thinking about sensitizing some of the recent demand trends, particularly in your Sentex brand? I understand that it's not going to be a major potentially not as major a dynamic for your move up or active adult. But in your Centex brand, what's the sensitivity to a 40 basis point, 50 basis point move and rates that you've kind of seen or thought about? Speaker 300:52:50Certainly for that true entry level buyer, it's the game, right? And so we've got programs that offer them lower cost incentives, so we're giving them more rate support relative to others who have choices. And it's worth it to remember, we offer a national program, but there's a lot of detail in terms of what we can and actually do offer to people and what they want to kind of access in terms of our support. There will be some people with rates moving up that will literally fall off the ability to buy a home. That's not the case for our active adult move up buyers. Speaker 300:53:32And candidly for a lot of our Centex buyers, you look at our average sales price at 419 $1,000 in this most recent quarter. That's not typically your true entry level buyer. We're at a little bit higher price point. Our first time communities are typically a little bit closer in. And so I think it depends on who your buyer is. Speaker 300:53:56But to answer your question about will we vary our offering? The answer is yes, we have been. We are actively managing these national programs. We're buying commitments in relatively small amounts so that we don't get caught by market changes. And what it allows us to do is change our offering based on what the market is doing. Speaker 300:54:22So as the market's rates floated down, we moved our offer rate down somewhat to try and be responsive to to deliver a real savings versus the street rate that they can get on their mortgage. As rates tick back up, we're moving those rates up a little bit. It's an art, not a science. But I think what you can expect us to do is listen to the consumers in terms of what they need and seek to offer them programs that give them what they Speaker 1300:54:56Thanks, Bob. Appreciate that. Operator00:55:02Your next question comes from the line of Alan Ratner with Zelman and Associates. Please go ahead. Speaker 1400:55:10Hey, guys. Good morning. Thanks for squeezing me in here. Nice quarter. So, we'd love to get your updated thoughts on specs versus build to order. Speaker 1400:55:20I know you and others kind of ramp the spec production as cycle times re elongated and there was a premium or at least kind of that margin differential spec versus BTO was kind of smaller than it historically has been. I'm just curious if you're thinking about that any differently today with cycle times continuing to normalize and rates seemingly being higher for longer, sounds like maybe the Centex offering, which is predominantly spec, I would think, is maybe seeing more of that impact from the move in rates. So are you at the point now where you are kind of dialing back the spec starts a bit or do you still want to maintain the current mix of your business? Speaker 200:56:01We're pretty happy with where we're operating. And we look at a couple I mean the first thing we look at is what's the percentage of built to order versus spec sales. Right now it's running around fifty-fifty. And then we highlighted in Bob's prepared remarks, 40% of our WIP is spec and we've got a little bit higher than one final per active community. So, we pay attention to it closely. Speaker 200:56:35It's something that we spend a lot of time managing and being responsive to what we're seeing in the market. To your point, most of our spec, our Syntex business is spec. We certainly have a little bit of spec in the other two brands, but VoLTE and Del Webb tend to be more of a built to order kind of model and we're certainly responsive to that as well. So we're going to watch it, but in a higher interest rate environment, having available specs that you can more efficiently and effective apply the most powerful incentive to in the form of the forward mortgage rate commitments, you can do that better on spec inventory, which makes it more attractive. So you'll probably see us stay pretty close to where we're at. Speaker 1400:57:25Great. Appreciate your thoughts there, Ryan. And then pivoting to kind of the incentive environment, I think obviously you guys certainly made the right call by not chasing the market lower in the Q4 based on your performance this quarter. It sounds like from your guide for flattish incentives, you're not expecting to have to ramp a discount says the selling season kind of moves into its later stages. But what is the sensitivity you're looking at there? Speaker 1400:57:53How much longer will the more recent, I guess, softer traffic trends or maybe sales activity, how long would that have to persist before you would sit there and say, you know what, we need to maybe increase those incentives a little bit to bring up the sales pace? Is it a few months? Is it kind of getting past the peak of the selling season and you're sitting on more inventory than you'd like? What's the decision process there look like? Speaker 200:58:20Yes, Alan. We look at sales rates every single day. It's one of the first emails that I look at is what it sales for the prior day come in at and we look at qualitative and quantitative feedback that we get from our field operations and going through that decision making process. What I can tell you is, the change in rate never mind what it was and never mind what it's going to just the mere fact something changed. We've seen that causes in buyer behavior over the last 24 months. Speaker 200:59:02Anytime there's been a step change in rate and the media cycle that goes with it, that certainly has a pretty profound impact on buyer behavior. Time does seem to cure it. The only thing that I would continue to kind of caveat and put out there is that affordability continues to be a real issue. And so, we've got to balance the change there. We think one of the things that we're going to continue to do is pay attention to what the headline rate is. Speaker 200:59:41And Bob talked about that a few questions ago. Our national mortgage rate incentives have got the flexibility to move based on what the market is doing. So, we still think we can have a compelling offer out there relative to the street rate that doesn't necessarily cost us a whole bunch more relative to what we're currently paying. The last piece Alan is we're going to keep our production machine moving. We are a production builder and we're going to do that in a way that we think optimizes kind of return. Speaker 201:00:20So, if there are price changes or discount changes that ultimately have an impact on affordability that allow us to continue to turn the asset and keep the market share that we have, we'll definitely do that. Speaker 301:00:38Thanks a Speaker 101:00:38lot for the pass guys. Appreciate it. Operator01:00:45We have reached the end of the call and we'll take our final question from Ken Zener with Seaport Research Partners. Please go ahead. Speaker 701:00:56Good morning, everybody. Speaker 101:00:58Thanks, Ed. Speaker 701:01:01Wonder if you could just give some context on the regional comments you made. And I want to narrow it down to Florida because it's a segment that obviously generates quite a bit of your EBIT. Can you within Florida talk about how that existing market supply rising affected, let's say, the Centex 1st year move up brands realizing Orlando is different than coastal markets, but it's such a big market for you guys profitability wise. You can maybe give a little color related to the margin swings, you kind of seeing with those trade up buyers entry within markets that are seeing it pick up in inventory specific to Florida? Thank you. Speaker 201:01:50Yes. Ken, I want to make sure that I understood kind of the full question. Maybe I'll give you a little bit of Florida commentary and then if there's more follow-up, I'll let you ask that. Florida is a tremendous part of our business. We're in every nearly every major housing market there, save Miami. Speaker 201:02:15And a big part of our business there tends to be focused on move up and age targeted. We have some entry level business in our Tampa and Orlando businesses, but the other big markets are predominantly move up in H targeted. We get a little bit of move up in Jacksonville as well or a little bit of entry level on Jacksonville as well. So really strong business, a lot of job relocation there, a lot of folks that want to be there because they've got flexible work arrangements that allow them to work from home or work from elsewhere. The headwinds in Florida are definitely affordability. Speaker 201:03:01We've seen strong price appreciation in most Florida markets. And then the other kind of headwind that you've got there is around property taxes and insurance. So certainly those things kind of play into that, but Florida continues to be a big part of our business and a real bright spot for our business as well. Speaker 701:03:26That was sufficient. Thank you very much. Operator01:03:34I will now turn the conference back over to Jim Zuma for closing remarks. Speaker 101:03:38Great. Appreciate everybody's time today. We're around the remainder of the day for any follow-up questions and we look forward to speaking with you at various upcoming conferences and or on our next quarter's earnings call. Thank you for your time. Operator01:03:52This concludes today's call. You may now disconnect.Read moreRemove AdsPowered by