Pultegroup Inc ($PHM) Q1 2026 Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the PulteGroup, Inc. Q1 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to James Zeumer, vice president of investor relations. Please go ahead.

Thank you, Kelvin, and good morning. Want to welcome everyone to today's call to review PulteGroup's operating and financial results for our first quarter ended March 31, 2026. Joining me on today's call are Ryan Marshall, president and CEO, Jim Osowski, executive vice president, CFO, and David Carrier, senior vice president finance. In advance of this call, a copy of our Q1 earnings release and this morning's webcast presentation have been posted to our corporate website at pultegroup.com. We will also post an audio replay of this call later today. I would highlight 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 news release and within the accompanying presentation. These risk factors and other key information are detailed in SEC filings, including our annual and quarterly reports. Now, let me turn the call over to Ryan. Ryan,

Thank you, Ryan, and good morning. I look forward to providing a detailed review of PulteGroup's solid first quarter operating and financial results. On a year-over-year basis, the first quarter net new orders increased 3% to 8,034 homes with a value of $4.6 billion. Higher net new orders in the period benefited from a 9% increase in average community count to 1,043 while absorption paces decreased by 5% to 2.6 homes per month. I would highlight that the growth in our net new orders was driven by the ongoing strength of our Florida operations. I am pleased to report that orders increased in every Florida market and were up 18% statewide. In addition to gradual improvements in Florida's new and existing home inventories, our strong performance reflects PulteGroup's superior land positions, our ability to serve all buyer groups, and our outstanding leadership teams. Our cancellation rate as a percentage of starting backlog on the quarter was 13% compared with 11% last year. The percentage increase in our cancellation rate reflects the smaller starting backlog we had entering the period as unit cancellations are actually slightly down in the quarter relative to last year. In the first quarter, net new orders among move-up and active adult buyers were higher by 3% and 14% respectively over the first quarter of last year. Net new orders among first-time buyers decreased by less than 1% from Q1 of last year. By buyer group, net new orders in the first quarter consisted of 38% first-time, 39% move-up, and 23% active adult. In the first quarter of 2025, our net new orders were 39% first-time, 40% move-up, and 21% active adult. Net new orders benefited from land investments made in prior years as we grew community count across all buyer groups. Home sale revenues in the first quarter were $3.3 billion compared with $3.7 billion last year. Lower home sale revenues for the period were the result of a 7% decrease in closings. The 6,120 homes in combination with a 5% decrease in average sales price to $542,000. ASP was down mid-single digits across each buyer group and reflects the generally competitive conditions and elevated incentives that exist in many markets across the country. By buyer group, closings in the first quarter breakdown as follows. 38% first-time, 39% move-up, and 23% active adult. This compares with a prior year closing mix of 38% first-time, 41% move-up, and 21% active adult. Based on sales and closings in the period, at the end of Q1, our backlog was 10,427 homes with a value of $6.5 billion. We ended the first quarter with 14,090 homes in production, of which 6,349 were spec homes. As Ryan highlighted, and consistent with our stated objective, we lowered total spec inventory by almost 900 homes from the end of 2025. At quarter end, specs accounted for 45% of homes under construction. Of the specs under production, there were 1,515 finished spec homes, which is a decrease of nearly 500 homes or 24% in just the past 90 days. At this level, we are in our target range of having an average of one to 1.5 finished specs per community. Based on the homes under construction and their stage of production, we expect to close between 6,700 and 7,100 homes in the second quarter of 2026. This keeps us on track with our previous guidance on closings in the range of 28,500 to 29,000 homes for full year 2026. Consistent with the guidance provided on our last earnings call, given land investments made in prior years, we expect year-over-year community count growth of 3% to 5% in each of the remaining three quarters of 2026. Given competitive market conditions and our belief that incentives will remain elevated, we expect the average sales price of second quarter closings to be in the range of $540,000 to $550,000. For the full year 2026, we reaffirm our previous guidance of ASP of $550,000 to $560,000 as we expect a higher mix of built-to-order closings in the third and fourth quarters. For the first quarter, we reported gross margin of 24.4% which is down from 27.5% in the first quarter of 2025. The year-over-year decline in gross margin primarily reflects higher incentives which were 10.9% of gross sales price in Q1 2026. This is an increase of 290 basis points from last year and is up 100 basis points sequentially from Q4 2025. As we are getting the question more frequently of late, I would note that within our Q1 home sale cost of revenues is approximately $6 million or 20 basis points associated with land impairments. Based on quarterly testing, impairments were triggered in two communities and are reflective of today's competitive market dynamics in combination with our ongoing efforts to clear excess spec inventory, particularly finished specs. I'm pleased to report that thanks to a lot of outstanding work by our construction and procurement teams, Q1 land and house costs were down 5% from the first quarter of last year to $75 per square foot. Savings were led by lower lumber costs, but we have also achieved savings across a wide array of building products and services. Based on anticipated closing mix and current selling conditions, we expect second quarter gross margin to be in the range of 24.1% to 24.4%. I would note that we expect Q2 gross margins to be the low point for 2026. We are forecasting gross margins to recover in the back half of the year as we benefit from increased closings of higher margin active adult and built-to-order homes. As such, we maintain our guide for full year 2026 gross margin to be in the range of 24.5% to 25.0%, although likely toward the lower end of the range. First quarter home building SG&A expense of $380 million or 11.5% of home sale revenues compared with $393 million or 10.5% in Q1 of last year. On a dollar basis, our SG&A expense in the quarter was down $13 million from last year, but we lost leverage given fewer home closings and revenues in the period. First quarter SG&A expense was in line with prior guidance. So, we are maintaining our guidance for full year 2026 expense to be in the range of 9.5% to 9.7% of home sale revenues. PulteGroup's financial services operations reported first quarter pre-tax income of $13 million, which is down from pre-tax income of $36 million in the first quarter of 2025. Financial services pre-tax income in the first quarter was impacted by lower home building volumes and reduced capture rate along with lower net gains from the sale of mortgages. Mortgage capture rate in the period was 85% compared with 86% last year. First quarter pre-tax income for PulteGroup was $449 million. In the period, we recorded a tax expense of $12 million or an effective tax rate of 22.8%. Our Q1 tax rate reflects the benefits of stock-based compensation and federal tax credits. Looking out to the remainder of the year, we continue to expect our tax rate to be approximately 24.5%. Our expected tax rate does not take into consideration any discrete period-specific tax events that might occur. PulteGroup's net income for the first quarter was $347 million or $1.79 per share. In the comparable prior year period, the company reported net income of $523 million or $2.57 per share. Earnings per share for the first quarter was calculated based on 193 million diluted shares outstanding, which is down 5% from the prior year. In the first quarter, we repurchased 2.4 million common shares for $38 million, which brings total repurchases for the trailing 12 months to 10.3 million common shares for $1.2 billion. In a separate press release we issued this morning, we announced that our board authorized an additional $1.5 billion for share repurchases, which brings total availability to $2.1 billion. Along with returning capital to shareholders, we continue to prioritize investing in the growth of our operations. In the first quarter, we invested $1.3 billion in land acquisition and development, which was evenly split between the two activities. We ended the first quarter with 229,000 lots under control, which is down approximately 5,000 lots from the end of 2025. We remain focused and disciplined in our land activities as we look for opportunities to grow our business while achieving acceptable risk-adjusted returns and managing overall portfolio risk. After 24 months of variable housing demand and limited opportunities for price appreciation, land inflation has started to ease. We are seeing land prices stabilize in many parts of the country and even move lower in individual deals in a handful of markets. Every land deal is different and locations are still in demand, but we are finding more opportunities to negotiate improved land terms be it the price, the timing, or both. In the first quarter, we issued $800 million of senior notes split equally in tranches of five and 10 years. We used approximately $600 million of the proceeds to repay existing notes with the remaining $200 million to be used for general corporate purposes. Inclusive of these transactions, we ended the first quarter with a debt to capital ratio of 12.3%. Adjusting for the $1.8 billion of cash we held at quarter end, our net debt to capital ratio was effectively zero. Given current market dynamics and our expected 3% to 5% growth in community count, we are projecting land acquisition and development spend of $5.4 billion in 2026. Assuming this level of land spend and the expectation that house inventory will increase commensurate with an increasing level of built-to-order home sales, we would expect 2026 cash flow generation to be approximately $1 billion. Overall, it was another very productive quarter for the company. Now, let me turn the call back to Ryan.

Great. 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. Kelvin, now open the call to questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. As we enter Q&A, we ask that you please limit your input to one question and one follow-up. As a reminder, to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Your first question comes from the line of John Lovallo of UBS. Please go ahead.

Good morning, guys. Thanks for taking my questions. The first one is, can you just help us with some of the moving pieces in the gross margin walk from roughly 24.4 in the first half to 24.5 to 25 for the full year. I mean, it certainly seems like closing mix is going to be a good guy. Stick and bricks could be a good guy. Land maybe a little bit better than it had been. And then the incentive load, are you still assuming sort of 10.9 carries throughout the year?

Yeah, John, I think you've got all the right pieces there. We are assuming a higher incentive load, but we'd expect it to likely come down driven by a couple of factors. One would be more built-to-order and more move-up and active adult business where we tend to incentivize less. We've also cleared a lot of the finished spec inventory which were carrying higher incentive load. So, while we'd expect the overall environment to remain competitive and the elevated incentive load to stay, the mix of product and consumers that we have coming through could potentially bring the overall number down, which is why we're guiding to the full year staying kind of within our range. You'll note that Q2 is going to be a low point for a couple of reasons. One of the big reasons in that is that a lot of the spec inventory that we sold in Q1 at a higher incentive load are closing. Some closed in Q1. You got a bunch more that are closing in Q2.

Okay. Yeah, that's really helpful. And maybe just kind of echoing what you said, Ryan, before. I mean, it seems like the spring has actually been reasonably good considering a lot of factors in the market and most builders have reported orders that are up year-over-year. So, indicating a little bit of a better spring despite this macro and geopolitical headwinds. The question is, if we do in fact get some kind of resolution here to the conflict in the Middle East, do you think we could still have a really good spring selling season? And on top of that, is there a chance that we could get extended a bit maybe into June just given shorter cycle times for many of the builders?

That's encouraging. Thank you.

Your next question comes from the line of Alan Ratner at Zelman. Please go ahead.

Hey guys, good morning. Thanks for all the detail and nice job in a tough market. Good morning. Thank you. Ryan, you alluded to this several times, but I was hoping to dig in a little bit deeper on the incentive trends and specifically what I'm curious about is do you have data or can you kind of talk through the difference in incentives you offer both across price points as well as BTO versus spec? I mean, I see obviously they were up sequentially and year-over-year across the averages, but I'm curious if there's any notable differences across those price points or BTO versus spec.

Great. I appreciate the detail there. Second, was hoping to ask about your land book. Land banking has become a bit of a hot button topic in the investment community over the last couple of months. And you've seen a nice uptick in your share of

Lots held off balance sheet, but I know that includes a lot of different things, traditional land options, land banking. So, can you quantify for us your exposure to land banking and I guess just talk more broadly about how your land banking deals are generally structured? Are you making periodic interest payments? Are they more kind of on the back end in like a pick fashion? Any color you can give would be great. Thank you.

Sure. Thanks, Ryan. Alan, I'll fill you in a couple things. So, as it relates to land banking, of the 229,000 lots that we control, we have about 18,000 with land bankers. So, it's about 8% of the book of business. To Ryan's point, what we really want to do is we would love to get underlying optionality with land sellers directly, and what I tell you of the 127,000 lots that we have under option, over 85% of those with underlying land sellers. So, again, it's the vast majority. That's what we task our teams do. Let's go for that first and foremost. If we can supplement it with banking, we will, but we'd love to get a deal with people on the ground first.

Great. That's really helpful. And Jim, if you have it, of those 18,000 lots with land bankers, can you give a little bit of detail on how those are structured, either in terms of average deposit, what the kind of carry is, etc.?

Yeah, I tell you that, you know, most bankers that are out there today, it's usually about a 15% deposit that they request on those and then, you know, rates will be in the, you know, the low double digit range typically for those. To give you context, our deposits as a percentage of future purchases is only 7.5% for the whole company. So the vast majority are at very low deposits with underlying land sellers, but the bankers carry a little bit richer mix.

Great. Really appreciate the detail, guys. Thanks a lot.

Your next question comes from the line of Stephen Teme of Evercore ISI. Please go ahead.

Yeah, thanks very much guys. Appreciate all that color particularly on the land side. So that's great to hear. I wanted to talk a little bit about your free cash flow guide. I believe you said about a billion. Now, the way I'm modeling things, it seems like your net earnings are going to be much higher than that. And so, I was wondering if you could talk about that free cash flow conversion and what you see as being offsets to the net income this year. Is it that you anticipate to end with a meaningfully higher owned land supply than you currently have or is there something else going on? Just some color there would be helpful.

You know, I'll take that as a real positive obviously because it suggests that this is just kind of a temporary thing and that free cash flow conversion should improve once you get over this build of BTO. So, first I guess I would just ask is that in fact the way you see things and where do you see the BTO mix of let's say orders or maybe closings finally reaching your 60% level. Is that something that you think could be reached by the end of this year or is this something that is going to take well into next year you think to accomplish?

Great. Appreciate that.

Your next question comes from the line of Anthony Pettiner of Citi. Please go ahead.

Good morning. You talked about stick and brick costs. I think down 5% and it sounds like lumber was a good guy there. I guess those lumber's been coming up for the last I guess month and a half. Can you just remind us the lag in which you'd see that and then maybe related question, you know, with conflict in the Middle East. It seems like we're seeing, you know, metal prices, chem-based building material price hikes out in the market. What would be the lag that you would maybe see some of that in your stick and brick costs.

Sure. Great question. You know, I guess first what I'd tell you is as we did, you hit on it. We had a really good first quarter. Our procurement teams have done a great job. They were down 5% year-over-year. You know, as we look out over the balance of the year we want to reaffirm our, you know, we said that our house costs would be flat to slightly down. We still believe that and that's baked into our guide. On your question on lumber, when will we see that? It's usually two quarters out because the way that we buy the lumber today, those are going to turn into closings two quarters out from now. You know, it has inflected higher in recent weeks. You know, the other thing that we're keeping an eye on are fuel costs. We're monitoring that. You know, at this point in time, we've done a good job. You know, you'll hear of things like fuel search charges. We've combed those so far, but, you know, in recent weeks, as the cost of fuel has started to come down a bit from the highs, we're keeping an eye on it. But, you know, again, I'll go back to what I said. Q1 was a really great one, and even with some of those headwinds for lumber, we still believe we can be flat to slightly down for the remaining quarters.

Okay, that's very helpful. Just one quick one on incentives without cutting it too finely. Were incentive levels fairly steady for the three months of the quarter and maybe the exit rate into April or was there any kind of increase or decrease that you call out there?

They were fairly steady across the quarter. It really got down to a community by community basis of what we had to offer to move specs, but again, pretty consistent through the quarter.

Okay, that's very helpful. I'll turn it over.

Your next question comes from the line of Michael Rehak of JP Morgan. Please go ahead.

Thanks. Good morning everyone. Thanks for taking my questions. Just a clarification actually on the incentive question. Jim, when you said kind of stable throughout the quarter, was that on closings or orders? And when we think about, you know, a slight dip down in 2Q gross margins, I believe you're saying that was kind of from the fuller impact of the reduction of spec maybe that was transacted, you know, three, four, five months ago. So, just trying to get a sense of how incentives are still impacting 2Q gross margins from prior conditions and if the comments you just made were more on current market conditions on orders.

Okay. No, that's great, Ryan. I'm sorry if it wasn't clear. I thought I implied the same thing that, you know, that the bigger impact of the fail of specs would be more felt in the second quarter or, you know, that's really what's flowing through. So I think we're on the same page there. You know, shifting to the strength that you saw in Florida. I'd really love to dive into that a little bit. Obviously it was a bright spot for you this quarter. And really get to understand, you know, across your major markets. Obviously, you benefit from a good amount of diversification and in your consolidated numbers had the relative strength and move up in active adult from the order signup side. But I'd love to understand what's going on in Florida from a broader market perspective in terms of inventory both on new and existing homes and how much you think that contributed to the stronger results that you saw this quarter.

And any comments on the inventory trends across the major markets? That would be very helpful.

Great. Thank you.

Your next question from the line of myself, RBC Capital Markets. Please go ahead.

Morning. Thanks for taking my questions. I just wanted to first ask about the mixed dynamics in the back half of the year obviously from an order standpoint. We kind of see that mix evolving in terms of the move up and active adult outperforming first time. So, you know, in terms of what you're projecting on the margin in the back half, how much of that do you already have visibility on based on what you've sold over the past handful of months versus kind of an assumption of what's left to sell in the next several months and what that mix is going to look like?

Yeah, I mean, I would tell you it's, you know, what we're seeing on the sales floor today, what we have out there. You know, Ryan highlighted our Florida business has done really well. Our northeast, our southeast business, which carry a higher margin profile as well. So, you know, we're looking at what we sold in Q1 and kind of making predictions about what goes out over the balance of the year, but again, there's a lot of parts and pieces that go into it, but the build to order mix and the active adult are the two biggest components that will drive the increase.

Okay. And then relatedly, I guess when we look at, you know, starts versus sales and your comments about, you know, you did a pretty good job taking down finished spec in the quarter. It sounds like there's a little left to go in the current environment. Like if you're within that one to one and a half per community band on finished spec, are you trying to get down to that lower end right now given what you're seeing in the market and how you think about optimizing profitability and how does that kind of tie into how we should think about your prospective starts versus order pace?

That helps make sense. Thanks, Ryan.

Your next question comes from the line of Sam Reed of Wells Fargo. Please go ahead.

Thanks everyone. Wanted to drill down a little bit more on ASP. I believe in the prepared remarks, it sounds like ASP was down mid single digits across all buyer cohorts, which would include move up and active adult. And it did also sounds like based on your answer earlier in the Q&A that you might have stepped up some forward rate commitments to those move up and active adult buyers. I just wanted to though understand are you also making any surgical price cuts in move up and active adult as well that we should be mindful of.

That's helpful. And maybe switching gears to the financial services line item, I noticed financial services pre-tax was lower and I believe one of the reasons you called out were lower gains on mortgage sales. So just maybe curious the moving pieces behind that lower gain and curious if it's also a function of perhaps a step up in adjustable rate activity. So just wondering if that could be one of the drivers of the financial services pre-tax change year-over-year.

Sure. Great question. You know, let me start first off saying we're very pleased with the operating performance of our financial services organization. They do a great job supporting our home building operations and supporting our customers. On the question on ARMs, ARMs were 9% of all closings in the first quarter versus 7% for all of last year. So, a little bit higher, but nothing meaningful. You know, when you look year-over-year, a couple things I'll point out. And some of this is just timing and we'll expect improvement over the balance of the year, but home building volumes were down. We noted lower net gains on a sale of mortgages as rates kind of ticked up on us. We had lower value ascribed at the time that we do our rate locks. And then as well, we had slightly higher expenses as, you know, we've invested in people and technology for the year. So again, I think they performed very well in the first quarter. And I'd argue it's a little bit of timing and we'll continue to see improvement in that over the balance of the year.

All helpful context. Thanks so much.

Your next question comes from the line of Matthew Julia Barkley. Please go ahead.

Morning everyone. Thank you for taking the questions. Maybe just to pull on the thread of the build to order mix. I think you said from an order perspective it was maybe 3% higher in Q1 relative to last year and my questions on sort of the gross margin. So I think you're implying in the second half maybe the gross margins up 75 basis points give or take relative to the first half. So I think the build to order closings mix would need to be fairly meaningfully higher if that's kind of the main driver. So, I guess what is the expected build to order closings mix in the second half or is there anything else that kind of supports that level of sequential margin improvement? Thank you.

Well, you'll have both the richer mix of built to order, but then as well as Ryan highlighted and I said in my prepared comments, as we've gotten more of that finished spec inventory off the books, that will be less influential as you get out to Q3 and Q4. So, a little bit built to order and then as well some of these finished specs that came through in Q1 and Q2 for us.

Okay, understood. That's perfect. Thank you. And then secondly, you mentioned sort of easing land prices. So question is how do you think about kind of the timing of what you're seeing in the land market today for when it actually flows through your P&L and is there kind of a rule of thumb or broad average for PY on kind of land costs versus development costs as it pertains to the final lot costs that you ultimately see in your cost basis. Thank you.

Perfect. Thanks, Ryan. Good luck, guys.

We are limited on time. Your last question will come from the line of Trevor Allen of Wolfe Research. Please go ahead.

Hi, good morning. Thank you for taking my questions. First one is on your approach to share repo here. You've got the new authorization out. Your net leverage is close to zero. I think you mentioned earlier that the cash flow hit from more BTO is somewhat temporary in nature. Just want to gauge your appetite for accelerating share repo here maybe ahead of your cash generation and then your views overall on leverage versus the roughly 0% you're at currently.

Yeah, it does. And thanks for all that color, Ryan. Very helpful. And then second one just on the Midwest. It's been a bright spot for you guys the last couple years. I think you mentioned some weather impacts there. Maybe also some comp dynamics just given it's been stronger, but are you starting to see any change in relative performance in the Midwest? Is it not outperforming by as much as what you've seen in recent quarters or you think that again that's more just a comp dynamic and a weather impact that you saw in the quarter?

Thank you for all the color and good luck moving forward.

That concludes the Q&A session. With that, I will now turn it over to James Zeumer for final closing comments. Please go ahead.

Thank you. Appreciate everybody's time this morning. I'm sorry we were unable to get through all the questions in the queue, but we'll certainly be available for the remainder of the day and we will look forward to talking to you on our next earnings call.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.