PulteGroup (PHM) Tops Q2 EPS by 2c; Announces Next Phase of Value Creation; Updates on CEO Search

PulteGroup (NYSE: PHM) reported Q2 EPS of $0.34, $0.02 better than the analyst estimate of $0.32. Revenue for the quarter came in at $1.8 billion versus the consensus estimate of $1.66 billion.

Company Announces Next Phase of Value Creation

The Company also announced the next phase of its Value Creation strategy, with plans to drive greater overhead leverage, moderate the growth of future land investment, and increase share repurchase activities consistent with stated capital allocation priorities. These actions build on the highly successful initiatives it launched in 2011 in support of efforts to deliver higher returns on invested capital. As part of its Value Creation strategy, the Company established its capital allocation priorities which include investing in high returning projects, while routinely returning funds to shareholders through dividends and systematic share repurchases. Since launching Value Creation, the Company has seen its gross margins, its operating margins, and its returns increase to be among the industry leaders, and it has returned over $1.2 billion to shareholders through dividends and share buy backs.

"Through our Value Creation strategy, PulteGroup has realized tremendous gains in its operating and financial performance, which is what ultimately drives returns for our shareholders," said Richard J. Dugas, Jr., Chairman and Chief Executive Officer. "After our initial focus on improving our operating and balance sheet metrics, we transitioned to increasing investment into the business in support of profitable growth. Increased land investment over the past 24 to 36 months is resulting in substantial growth in 2016 volumes, revenues and profitability, and we believe has the Company well positioned for continued earnings growth over the next few years."

"As we now look ahead and begin planning for the next successful phase of Value Creation, we are implementing the following actions:

• We plan to slow the rate of growth in our land spend going forward, and use expected strong cash flows from operations to help fund the repurchase of $1.5 billion of our shares over the next six quarters;
• We are taking actions to lower our SG&A spend from an expected 10% of home sale revenues in 2016 to a targeted rate of 9% or less of 2017 home sale revenues;
• Our Board of Directors has approved a $1.0 billion increase in the Company's share repurchase authorization raising our total authorization to $1.5 billion. The Company plans to repurchase $250 million of its shares in each of the third and fourth quarters of 2016 and $1.0 billion of its shares in 2017;
• And, as announced in a separate release, we have added three new directors: John Peshkin, who has over 30 years of direct homebuilding experience including having served as CEO of Taylor Woodrow Homes and on the Boards of Standard Pacific Homes and WCI Communities; Joshua Gotbaum, who has served in a number of senior private and public sector roles; and Scott Powers, who has over 30 years of experience in financial asset management and most recently served as president and CEO of State Street Global Advisors."

Elliott Management Comments on Company Actions

"We appreciate PulteGroup's ongoing efforts to run a more efficient homebuilding business and toward building long-term shareholder value," said Dave Miller, Senior Portfolio Manager at Elliott Management. "The addition of these proven executives to the Board, along with PulteGroup's continued focus on improving operations, unlocking the value of its asset base and accretive capital return will drive significant value for shareholders."

The Company and affiliates of Elliott Management, which recently acquired 4.7% of PulteGroup shares, have entered into an agreement that provides, among other things, that Elliott will support the Company's slate of director nominees at the Company's 2017 Annual Meeting of Shareholders.

Company Updates CEO search

PulteGroup announced that newly named Board members John Peshkin and Josh Gotbaum will be added to the Company's previously established CEO search committee. "We look forward to having the perspectives of two experienced senior leaders such as John and Josh added to the committee," stated Patrick J. O'Leary, PulteGroup director and search committee leader. "Our committee is making good progress and we look forward to completing our evaluation of internal and external candidates."

For earnings history and earnings-related data on PulteGroup (PHM) click here.

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