On this page of StockholderLetter.com we present the 3/21/2023 shareholder letter from PULTEGROUP INC/MI/ — ticker symbol PHM. Reading current and past PHM letters to shareholders can bring important insights into the investment thesis.
2022 ANNUAL REPORT
About PulteGroup, Inc. PulteGroup, Inc. (NYSE: PHM), based in Atlanta, Georgia, is one of America s largest homebuilding companies with operations in more than 40 markets throughout the country. Through its brand portfolio that includes Centex, Pulte Homes, Del Webb, DiVosta Homes, American West and John Wieland Homes and Neighborhoods, the company is one of the industry s most versatile homebuilders able to meet the needs of multiple buyer groups and respond to changing consumer demand. PulteGroup s purpose is building incredible places where people can live their dreams. For more information about PulteGroup, Inc. and PulteGroup brands, go to pultegroup.com; pulte.com; centex.com; delwebb.com; divosta.com; jwhomes.com; and americanwesthomes.com. Follow PulteGroup, Inc. on Twitter: @PulteGroupNews.
PulteGroup s Annual Letter to Owners, Customers, Team Members and Business Partners We entered 2022 with tremendous forward momentum driven by exceptional consumer demand and ongoing price appreciation that allowed PulteGroup to deliver outstanding and, for many key metrics, record-setting financial results in 2022. The year, however, is a story told in two parts, as the nation s strong housing demand was impacted by the Federal Reserve s efforts to tame surging inflation. Home Sale Revenues ($B) $15.8 $13.4 $9.8 $9.9 $10.6 2018 2019 2020 2021 2022 Return on Equity* 33% 28% 24% 23% 20% 2018 2019 2020 2021 Specific to PulteGroup s results, we successfully capitalized on the strong start to 2022 and delivered an 18% increase in full-year home sale revenues to a record $15.8 billion. With supply chain disruptions continuing to limit production and extend build cycles, the increase in revenues was driven by higher selling prices realized across all buyer groups - first time, move up and active adult - as deliveries increased 1% to 29,111 homes. Given an operating environment where production capacity was severely constrained, we focused on profitability and operating efficiency to drive higher earnings and returns. Benefiting from the strong pricing environment in the first half of 2022, we increased home sale gross margins for the full year by 330 basis points to a record 29.7%, while lowering SG&A by 20 basis points to 8.8% of home sale revenues. The combination of higher revenues and a 350 basis point expansion in operating margin enabled the Company to increase net income by 34% to $2.6 billion, while increasing earnings per share by 48% to a record $11.01 per share. I would highlight that the increase in our 2022 earnings per share benefited from a 9.4% reduction in diluted shares outstanding as the Company repurchased $1.1 billion of common shares outstanding during the year. PulteGroup continues to execute the homebuilding industry s most active share repurchase program, having returned $5.0 billion to shareholders and repurchased 45% of our then-outstanding shares since 2013. Over this same period, we have also paid out $1.1 billion in dividends. 2022 *Annual ROE calculated as annual net income/trailing avg. 5 quarters Our 2022 net income of $2.6 billion further strengthened the Company s overall financial position as we ended the year with $1.1 billion of cash and a debt-to-capital ratio of only 18.7%. Consistent with our goal of achieving high returns over the housing cycle, the Company s 2022 return on equity increased for the third straight year to 32.9%*. Beyond our financial statements, I am pleased to say that in 2022 we began production in our second off-site manufacturing plant. Part of our Innovative Construction Group (ICG) platform, this newest plant is located in Florence, SC, and primarily serves our Coastal Carolinas division. Integrating innovative new technologies and material handling systems, ICG designs and builds superior quality wall panels, roof trusses and floor decks that are delivered to area construction sites to be quickly assembled into framed houses. We believe ICG provides 1
PulteGroup a competitive advantage as the production process can help shorten the construction cycle, while enhancing build quality and reducing product waste. Our long-term strategy of having six to eight ICG plants located around the country remains intact. Taking Definitive Action With national inflation climbing to multi-decade highs, the Federal Reserve initiated a series of actions to slow the economy and ease cost pressures that are impacting everything from food and energy to wages and housing. The most visible of the Fed s actions were a series of seven increases in the Federal Funds Rate implemented over the course of 2022. Given the linkage between the Fed Funds Rate and mortgage rates, there was little surprise that interest rates on 30-year mortgages climbed from roughly 3% to 7% as the year progressed. The impact on U.S. housing demand was profound as national new home sales for all of 2022 fell by 16% from the prior year to 644,000, while the sale of existing homes dropped 18% to approximately 5.0 million. Given the steep decline in housing demand, homebuilders appropriately slowed production as national single-family housing starts in 2022 dropped 11% from the prior year to 1.0 million. Consistent with these national trends, PulteGroup s 2022 net new orders were down 27% from 2021. The softer demand conditions in the second half of the year were the result of strained affordability as consumers were priced out of the market by the combination of higher home prices and higher mortgage rates. Beyond those who could no longer afford a new home because of the rise in the cost of homeownership, other potential consumers moved to the sidelines given overall market uncertainties and increased macroeconomic risks. Given the meaningful pressure on housing demand resulting from higher prices and interest rates, and our expectations that these market conditions would likely continue through 2023, we quickly implemented a series of actions to properly position the business for these more challenging market dynamics. The tactical adjustments we made were in alignment with our long-term strategy of delivering high returns over the housing cycle. In homebuilding, efficiently turning land assets is a critical driver of returns, so adjustments in our business practices were made to help sustain an appropriate level of ongoing sales. Therefore, as business slowed in the back half of 2022, we made the decision to intelligently find the market clearing price using incentives and/or other price adjustments to help improve affordability. PulteGroup has routinely realized among the highest homebuilding gross margins in the industry, but we understood that we could not be margin proud at the expense of losing sales. As a result, we worked to achieve an appropriate balance of profitability and inventory turns. We believe this approach would provide the best returns while allowing us to achieve better production efficiency as we continued to start and close homes on a more consistent cadence. As part of this process, we asked our local market leaders to carefully assess sales challenges and opportunities within each of their communities and to determine how best to provide value to each buyer group we serve. Along with working to more clearly define the value our homes offered to consumers, we also responded to homebuyer demand for quick move-in homes by increasing our inventory of homes in production. Homes contracted prior to the start of construction typically represent 65% to 70% of the homes we sell. The remaining 30% to 35% of our homes are what are called speculative (spec) homes for which we begin construction without a named buyer in place. Given current market dynamics and interest volatility, homebuyers want to shorten the period between contract signing and home completion, so we made the decision to increase production of spec homes to better meet buyer preference. Going forward, spec homes are now expected to represent 35% to 45% of our production. Changing our policy on the production of spec homes allowed us to implement a more consistent pace for starting new homes. Having an established and more consistent starts cadence during a period when national new 2
home construction has slowed allows PulteGroup to engage in meaningful negotiations with trades and suppliers as we work to shorten build cycles and lower construction costs. Having adapted our production volumes to better match demand dynamics, we also adjusted our land pipeline and investment strategies accordingly. Over the course of 2022, we made strategic decisions not to purchase approximately 52,000 lots that we held under option for future use. Given demand uncertainty, we determined that it made more sense to exit these agreements and write off approximately $64 million in deposits, rather than put at risk an incremental $2.1 billion of land investment. These actions not only helped us to decrease our land pipeline of owned and optioned lots by 8% from the prior year, but also show the importance of our overall land control strategy. Through the intelligent use of options to control lots, we can enhance project returns and help to mitigate market risk. As demonstrated over the course of 2022, lot options allow us to quickly respond to changing market dynamics by exiting land transactions with minimal financial impact. Under normal market conditions, we would expect to control the majority of our land pipeline via options and have set a long-term target of optioned lots representing 65% to 70% of our total land pipeline. In addition, we reduced our near-term allocation of capital to land investment. In 2022, we invested $4.5 billion in land acquisition and development, of which $1.9 billion was used to acquire new land assets. In 2023, we expect our land investment to decrease approximately 27% to $3.3 billion, with only $1.0 billion used to acquire new land positions. By reducing overall land investment and overweighting land development spend, we are in a better position to generate cash, reduce our land inventory, and enhance returns on invested capital. While we are lowering our land investment in response to market conditions, our stated capital allocation priorities do not change: Investing in our business through the acquisition of high-returning land assets and resulting residential communities Maintaining and seeking to grow our dividend as we have done for the past decade Returning excess capital to shareholders through the systematic repurchase of our common shares All while maintaining a modest leverage profile in line with our long-term leverage target of 20% 30% debt-to-capital on a gross basis 3 Over/Under Build Rela ve to 1.5 Million Housing Starts (In thousands) 800 600 400 200 0 (200) (400) (600) (800) (1,000) 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 16 20 18 20 20 20 22 While Federal Reserve actions to raise interest rates to slow the economy and dampen inflation worked to weaken housing demand in the back half of 2022, we believe the long-term outlook for housing remains strong. In the dozen years between 2010 and 2022, the population of the United States increased by 25 million people. During this same period, housing starts averaged only 1.1 million annually, which compares with an estimated need for 1.5 million new housing starts. In other words, it is estimated that this country faces a housing deficit of several million homes. The shortage of housing in this country only grows increasingly acute as the peak of 72 million people who comprise the generation of Millennials are only now entering prime homebuying age. Against this expected backdrop, we will continue to operate our business by adjusting to market conditions with a view towards generating high returns through housing cycles.
 • shareholder letter icon 3/21/2023 Letter Continued (Full PDF)
 • stockholder letter icon 3/22/2024 PHM Stockholder Letter
 • stockholder letter icon 3/14/2025 PHM Stockholder Letter
 • stockholder letter icon 3/13/2026 PHM Stockholder Letter
 • stockholder letter icon More "General Contractors & Builders" Category Stockholder Letters
 • Benford's Law Stocks icon PHM Benford's Law Stock Score = 85


PHM 3/21/2023 Shareholder/Stockholder Letter Transcript:

2022
ANNUAL
REPORT

About PulteGroup, Inc.
PulteGroup, Inc. (NYSE: PHM), based in Atlanta, Georgia, is one of America   s largest homebuilding companies
with operations in more than 40 markets throughout the country. Through its brand portfolio that includes
Centex, Pulte Homes, Del Webb, DiVosta Homes, American West and John Wieland Homes and
Neighborhoods, the company is one of the industry   s most versatile homebuilders able to meet the needs of
multiple buyer groups and respond to changing consumer demand. PulteGroup   s purpose is building incredible
places where people can live their dreams.
For more information about PulteGroup, Inc. and PulteGroup brands, go to pultegroup.com; pulte.com;
centex.com; delwebb.com; divosta.com; jwhomes.com; and americanwesthomes.com. Follow PulteGroup, Inc.
on Twitter: @PulteGroupNews.

PulteGroup   s Annual Letter to Owners, Customers, Team Members and Business Partners
We entered 2022 with tremendous forward momentum driven by exceptional consumer demand and ongoing
price appreciation that allowed PulteGroup to deliver outstanding and, for many key metrics, record-setting
financial results in 2022. The year, however, is a story told in two parts, as the nation   s strong housing demand
was impacted by the Federal Reserve   s efforts to tame surging inflation.
Home Sale Revenues ($B)
$15.8
$13.4
$9.8
$9.9
$10.6
2018
2019
2020
2021
2022
Return on Equity*
33%
28%
24%
23%
20%
2018
2019
2020
2021
Specific to PulteGroup   s results, we successfully
capitalized on the strong start to 2022 and delivered an
18% increase in full-year home sale revenues to a record
$15.8 billion. With supply chain disruptions continuing
to limit production and extend build cycles, the increase
in revenues was driven by higher selling prices realized
across all buyer groups - first time, move up and active
adult - as deliveries increased 1% to 29,111 homes.
Given an operating environment where production
capacity was severely constrained, we focused on
profitability and operating efficiency to drive higher
earnings and returns. Benefiting from the strong pricing
environment in the first half of 2022, we increased home
sale gross margins for the full year by 330 basis points
to a record 29.7%, while lowering SG&A by 20 basis
points to 8.8% of home sale revenues.
The combination of higher revenues and a 350 basis
point expansion in operating margin enabled the
Company to increase net income by 34% to $2.6 billion,
while increasing earnings per share by 48% to a record
$11.01 per share. I would highlight that the increase in
our 2022 earnings per share benefited from a 9.4%
reduction in diluted shares outstanding as the Company
repurchased $1.1 billion of common shares outstanding
during the year. PulteGroup continues to execute the
homebuilding industry   s most active share repurchase
program, having returned $5.0 billion to shareholders
and repurchased 45% of our then-outstanding shares
since 2013. Over this same period, we have also paid
out $1.1 billion in dividends.
2022
*Annual ROE calculated as annual net income/trailing avg. 5 quarters   
Our 2022 net income of $2.6 billion further strengthened
the Company   s overall financial position as we ended
the year with $1.1 billion of cash and a debt-to-capital
ratio of only 18.7%. Consistent with our goal of
achieving high returns over the housing cycle, the
Company   s 2022 return on equity increased for the third
straight year to 32.9%*.
Beyond our financial statements, I am pleased to say that in 2022 we began production in our second off-site
manufacturing plant. Part of our Innovative Construction Group (ICG) platform, this newest plant is located in
Florence, SC, and primarily serves our Coastal Carolinas division. Integrating innovative new technologies and
material handling systems, ICG designs and builds superior quality wall panels, roof trusses and floor decks that
are delivered to area construction sites to be quickly assembled into framed houses. We believe ICG provides
1

PulteGroup a competitive advantage as the production process can help shorten the construction cycle, while
enhancing build quality and reducing product waste. Our long-term strategy of having six to eight ICG plants
located around the country remains intact.
Taking Definitive Action
With national inflation climbing to multi-decade highs, the Federal Reserve initiated a series of actions to slow
the economy and ease cost pressures that are impacting everything from food and energy to wages and housing.
The most visible of the Fed   s actions were a series of seven increases in the Federal Funds Rate implemented
over the course of 2022. Given the linkage between the Fed Funds Rate and mortgage rates, there was little
surprise that interest rates on 30-year mortgages climbed from roughly 3% to 7% as the year progressed.
The impact on U.S. housing demand was profound as national new home sales for all of 2022 fell by 16% from
the prior year to 644,000, while the sale of existing homes dropped 18% to approximately 5.0 million. Given the
steep decline in housing demand, homebuilders appropriately slowed production as national single-family
housing starts in 2022 dropped 11% from the prior year to 1.0 million.
Consistent with these national trends, PulteGroup   s 2022 net new orders were down 27% from 2021. The softer
demand conditions in the second half of the year were the result of strained affordability as consumers were
priced out of the market by the combination of higher home prices and higher mortgage rates. Beyond those who
could no longer afford a new home because of the rise in the cost of homeownership, other potential consumers
moved to the sidelines given overall market uncertainties and increased macroeconomic risks.
Given the meaningful pressure on housing demand resulting from higher prices and interest rates, and our
expectations that these market conditions would likely continue through 2023, we quickly implemented a series
of actions to properly position the business for these more challenging market dynamics. The tactical adjustments
we made were in alignment with our long-term strategy of delivering high returns over the housing cycle.
In homebuilding, efficiently turning land assets is a critical driver of returns, so adjustments in our business
practices were made to help sustain an appropriate level of ongoing sales. Therefore, as business slowed in the
back half of 2022, we made the decision to intelligently find the market clearing price using incentives and/or
other price adjustments to help improve affordability.
PulteGroup has routinely realized among the highest homebuilding gross margins in the industry, but we
understood that we could not be    margin proud    at the expense of losing sales. As a result, we worked to achieve
an appropriate balance of profitability and inventory turns. We believe this approach would provide the best
returns while allowing us to achieve better production efficiency as we continued to start and close homes on a
more consistent cadence. As part of this process, we asked our local market leaders to carefully assess sales
challenges and opportunities within each of their communities and to determine how best to provide value to
each buyer group we serve.
Along with working to more clearly define the value our homes offered to consumers, we also responded to
homebuyer demand for quick move-in homes by increasing our inventory of homes in production. Homes
contracted prior to the start of construction typically represent 65% to 70% of the homes we sell. The remaining
30% to 35% of our homes are what are called speculative (spec) homes for which we begin construction without
a named buyer in place. Given current market dynamics and interest volatility, homebuyers want to shorten the
period between contract signing and home completion, so we made the decision to increase production of spec
homes to better meet buyer preference. Going forward, spec homes are now expected to represent 35% to 45% of
our production.
Changing our policy on the production of spec homes allowed us to implement a more consistent pace for
starting new homes. Having an established and more consistent starts cadence during a period when national new
2

home construction has slowed allows PulteGroup to engage in meaningful negotiations with trades and suppliers
as we work to shorten build cycles and lower construction costs.
Having adapted our production volumes to better match demand dynamics, we also adjusted our land pipeline
and investment strategies accordingly. Over the course of 2022, we made strategic decisions not to purchase
approximately 52,000 lots that we held under option for future use. Given demand uncertainty, we determined
that it made more sense to exit these agreements and write off approximately $64 million in deposits, rather than
put at risk an incremental $2.1 billion of land investment.
These actions not only helped us to decrease our land pipeline of owned and optioned lots by 8% from the prior
year, but also show the importance of our overall land control strategy. Through the intelligent use of options to
control lots, we can enhance project returns and help to mitigate market risk. As demonstrated over the course of
2022, lot options allow us to quickly respond to changing market dynamics by exiting land transactions with
minimal financial impact. Under normal market conditions, we would expect to control the majority of our land
pipeline via options and have set a long-term target of optioned lots representing 65% to 70% of our total land
pipeline.
In addition, we reduced our near-term allocation of capital to land investment. In 2022, we invested $4.5 billion
in land acquisition and development, of which $1.9 billion was used to acquire new land assets. In 2023, we
expect our land investment to decrease approximately 27% to $3.3 billion, with only $1.0 billion used to acquire
new land positions. By reducing overall land investment and overweighting land development spend, we are in a
better position to generate cash, reduce our land inventory, and enhance returns on invested capital.
While we are lowering our land investment in response to market conditions, our stated capital allocation
priorities do not change:

Investing in our business through the acquisition of high-returning land assets and resulting residential
communities

Maintaining and seeking to grow our dividend as we have done for the past decade

Returning excess capital to shareholders through the systematic repurchase of our common shares

All while maintaining a modest leverage profile in line with our long-term leverage target of 20% 30% debt-to-capital on a gross basis
3
Over/Under Build Rela ve to
1.5 Million Housing Starts
(In thousands)
800
600
400
200
0
(200)
(400)
(600)
(800)
(1,000)
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
While Federal Reserve actions to raise interest rates to slow
the economy and dampen inflation worked to weaken
housing demand in the back half of 2022, we believe the
long-term outlook for housing remains strong. In the dozen
years between 2010 and 2022, the population of the United
States increased by 25 million people. During this same
period, housing starts averaged only 1.1 million annually,
which compares with an estimated need for 1.5 million
new housing starts. In other words, it is estimated that this
country faces a housing deficit of several million homes.
The shortage of housing in this country only grows
increasingly acute as the peak of 72 million people who
comprise the generation of Millennials are only now
entering prime homebuying age. Against this expected
backdrop, we will continue to operate our business by
adjusting to market conditions with a view towards
generating high returns through housing cycles.


shareholder letter icon 3/21/2023 Letter Continued (Full PDF)
 

PHM Stockholder/Shareholder Letter (PULTEGROUP INC/MI/) 3/21/2023 | www.StockholderLetter.com
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