Robert T. O'Shaughnessy
Executive Vice President & Chief Financial Officer at PulteGroup
Thanks, Ryan. Starting with our income statement, homesale revenues in the 4th-quarter were $4.7 billion compared with $4.2 billion in the prior year. The increase in homesale revenues for the period reflects a 6% increase in closings to 8,103 homes, along with a 6% increase in our average sales price to $581,000. Our mix of closings in the quarter were comprised of 40% first-time, 40% move-up and 20% active adult. Consistent with our commentary over the last two quarters, the slight decline in the percentage of closings from active adult buyers reflects the timing of recent active adult community closeouts and we continue to expect a normalization of contribution from these consumers when replacement active adult communities begin opening for sales in the back-half of 2025. In the 4th-quarter of 2023, closings were 40% first time, 36% move-up and 24% active adult. I would note that the increase in our average selling price in the quarter relative to our guide is due primarily to the increase in the relative proportion of our closings from move-up customers. Example, our average community count for the 4th-quarter was 960, which represents a 4% increase over last year's 4th-quarter average of 919 communities and was in-line with our prior guidance. Looking at order activity in the quarter, our net-new orders decreased 1% to 6,167 homes. This decrease was primarily attributable to a 5% decrease in sales per store and a slight increase in our cancellation rate as a percentage of beginning backlog, partially offset by the 4% increase in our community count. Looking at demand conditions in the quarter, as we noted during our 3rd-quarter call, the market in October demonstrated a more typical seasonal demand pattern coming out-of-the 3rd-quarter. This continued through the quarter as consumers faced economic uncertainty related to potential economic changes being considered by the incoming administration and the recent increase in mortgage rates. We also noted then, given the macro issues consumers faced that the spring selling season would offer the best assessment of fundamental housing demand. We fast-forward to today and we continue to believe that market fundamentals while still presenting affordability challenges to consumers are supportive of housing and the spring selling season will be the best parameter for how the consumer will behave in today's economic environment. Looking at our order activity by buyer group, 4th-quarter net-new orders decreased 14% for first-time buyers, increased 15% for move-up buyers and decreased 1% for active adult buyers. We believe these activity levels reflect the continued interest of consumers for new homes, but also show the impact of the affordability challenges consumers face, particularly for first-time buyers. As a result of our sales and closings activity, our quarter-end backlog was 10,153 homes, which is down 16% from last year. On a dollar basis, our backlog of $6.5 billion is down 11%. Inclusive of the 7,502 homes we started in the 4th-quarter, we ended the year with 16,439 homes in-production. 53% of our production is spec, including 1,862 finished specs, which when combined with cycle times that are now largely in-line with our historical norm, puts us in position to meet buyer demand through the year. With that said, in the event that the spring selling season trends towards lower absorption rates, we will reduce our pace of spec starts in communities with higher-spec inventory levels so as to better match local selling conditions and help reduce standing inventory. As Ryan noted, our goal is to reduce our spec inventory back-down to 40% to 45% of our total production by the end-of-the year. Based on our current production pipeline, we expect to deliver 31,000 closings in 2025, including between 6,400 and 6,800 closings in the first-quarter. Looking at pricing, we currently expect the average sales price of closings to be in the range of $560,000 to $570,000 in each of the four quarters of the year. Our 4th-quarter gross margin was 27.5%, which is down 130 basis-points sequentially, but within the guide we gave at the end-of-the 3rd-quarter. Consistent with recent quarters, our 4th-quarter margins reflect higher incentives, which increased 20 basis-points sequentially from the 3rd-quarter to 7.2%. Based on our backlog and current sales conditions, we anticipate that gross margins in the first-quarter will be approximately 27%. For the balance of the year, we currently expect gross margins to be in the range of 26.5% to 27% in each of the second, third and fourth quarters. These estimates assume that incentives throughout 2025 will remain consistent with the incentives we recognized in the 4th-quarter. I would also point out that our margins beyond the first-quarter will ultimately be influenced by the demand conditions during the year as we have a significant number of homes to sell and close over the balance of the year. Moving on to expenses, our reported -- 4th-quarter SG&A expense was $196 million or 4.2% of homesale revenues, which compares with prior year reported SG&A expense of $308 million or 7.4% of homesale revenues. It should be noted that our reported results for the fourth quarters of '24 and '23 included $255 million and $65 million, respectively of pretax insurance benefits. Based on anticipated closing volumes, we currently expect SG&A expense in 2025 to be approximately 9.5% of home sale revenues, including SG&A expense of approximately 10.5% of wholesale revenues in the first-quarter. In the 4th-quarter, our financial services operations reported pre-tax income of $51 million, which is up from $44 million last year. The improvement in pre-tax income reflects the increase in our homebuilding closings as well as the continuation of favorable market conditions across our financial services platform. Our reported pre-tax income for the 4th-quarter was $1.2 billion compared with prior year pretax income of $947 million. In the period, we recorded tax expense of $269 million or an effective tax-rate of 22.8%. Our 4th-quarter effective tax-rate includes benefits relating to energy efficiency credits and our purchase of renewable energy tax credits. Projecting ahead, we expect our tax-rate in 2025 to be approximately 24.5%, excluding the impact of any discrete tax events, including energy efficiency credits or the purchase of incremental renewable energy tax credits. Looking at the bottom-line, our reported 4th-quarter results showed net income of $913 million or $4.43 per share. In the comparable prior year period, we reported net income of $711 million or $3.28 per share. Reflective of our strong operating results, we generated cash flows from operations of $1.7 billion in '24. Given our current expectations for operating and financial results in 2025, we expect to generate cash flows from operations of approximately $1.4 billion. Turning to our investment and capital allocation activities. We invested $1.5 billion in-land acquisition and development in the 4th-quarter, of which 53% was for development of our existing land assets. At the end for the year, our land investment totaled $5.3 billion, of which 57% was for development. Given our constructive views on near and longer-term housing dynamics, we currently plan to continue investing in-land at a rate designed to allow us to grow over-time. And as a result, we expect to invest approximately $5.5 billion in 2025 and would expect that approximately 55% of that spend will be for development. Consistent with my comments about our willingness to slow starts, we would also evaluate our spend on new land assets if absorptions slow as we seek to maintain a high-level of returns. Inclusive of our 4th-quarter investments, we ended the year with 235,000 lots under control, which is an increase of 5% over the prior year. I would highlight that on a year-over-year basis, we lowered our owned lot count by 2,000 lots, while increasing our lots under option by 14,000 lots. As a result, our percentage of lots under option increased to 56%, up from 53% last year. I'm pleased to note that 69% of our new land approvals in the 4th-quarter were under some form of option as we work towards a 70% option mix in our portfolio. Based on the investments we've made and our anticipated community openings and closings in 2025, we expect our average community count in 2025 to be up 3% to 5% in each quarter as compared to the comparable prior year period. Looking at our capital allocation priorities, we continued returning capital to investors in the 4th-quarter, which included the repurchase of 2.5 million common shares at a cost of $320 million or $129.90 per share. As Ryan noted, our total return to investors in '24 amounted to $1.7 billion, including the $1.2 billion of share repurchases, $168 million of dividends and $310 million through the early retirement of senior notes. Based on the actions taken, our debt-to-capital ratio at the end-of-the year was 11.8%, down 410 basis-points from last year. Adjusting for the $1.7 billion of cash on our balance sheet, our net-debt to capital ratio is now below zero. I'd like to take a moment to provide an update on our expectations for leverage in the future. As you know, we historically expressed that our target leverage level has been between 20% and 30% of capital on a gross basis. Due to the strength of our operations and the resulting utilization of our cash flows, over the last decade or so, we are well below that target range on a gross basis and as I noted, we are actually now net-debt free. Looking-forward, we expect to continue to generate sufficient cash flows to support our capital needs. As a result, we are no longer targeting a specific leverage level. Instead, we will allocate our capital in-line with our historical practice as we continue to prioritize investment in the business and the payment of our dividend with excess capital being used to repurchase our stock and/or retire our debt. Our resulting leverage position will therefore be an outcome that is dependent on the decision we make rather than targeted from a predetermined levels. With that said, we would expect to see our leverage remain flat or decline in the future unless there is a transaction where leverage augments our opportunity. Specific to 2025, I would also highlight that our Board recently approved a 10% increase in our dividend per share starting in the first-quarter of 2025. And as Ryan noted, we also announced a $1.5 billion increase to our share repurchase authorization this morning. Now let me turn the call-back to Ryan for some final comments.
