PulteGroup, Inc. (NYSE:PHM) on Thursday morning reported net income of $118 million, or $0.34 per share, for the second quarter ended June 30. Analysts were expecting a profit of $0.32 per share. The company also announced it would immediately add three new directors to its board in the wake of a protracted battle for control of the company between Bill Pulte, the company founder and largest shareholder, and management. Chairman and CEO Richard Dugas has announced plans to retire next spring.
The new directors include John R. Peshkin, a real estate investor and home building operator; Scott F. Powers, a financial services executive; and Joshua Gotbaum, an executive with financial, policy, and leadership skills. The appointments expand PulteGroup's Board of Directors to 13 members, 12 of whom are independent. The three new board members also were appointed to the search committee seeking a successor to Dugas.
Pulte homes in metro DC.
"We are delighted to welcome three distinguished individuals with relevant expertise to our Board as we move forward with the next phase of our Value Creation strategy," said Dugas.
Dave Miller, senior portfolio manager at Elliott Management, which has taken a large but unspecified stake in PHM, said, "We are excited about the skills and perspectives that the new directors bring to the Board. We think they will add meaningfully to PulteGroup as it transitions to its next phase of Value Creation."
The company's financial results included pretax charges of $15 million, or $0.03 per share, associated with the termination of certain pending land transactions and recognition of final costs associated with the company's corporate relocation. Prior year net income of $103 million, or $0.28 per share, included a pretax benefit of $27 million, or $0.05 per share, resulting from a legal settlement realized in the period.
Home-sale revenues for the second quarter increased 41% over the prior year to $1.8 billion. Higher revenues for the period were driven by a 27% increase in deliveries to 4,772 homes, combined with an 11% increase in average selling price to $367,000.
The Company's second quarter home sale gross margin was 21.5%, which is in line with company guidance. Margins for the quarter were reduced by approximately 70 basis points as a result of closings associated with the Company's purchase of substantially all of the assets of John Wieland Homes and Communities in January 2016.
Home building SG&A expense for the quarter was $192 million, or 11.0% of home sale revenues. Prior year SG&A of $130 million, or 10.5% of home sale revenues, included a benefit of $27 million relating to a legal settlement realized in the period.
The value of net new orders in the second quarter increased 21% to $2.1 billion. On a unit basis, net new orders for the period increased 11% to 5,697 homes. The Company operated out of 700 communities in the quarter, an increase of 11% from the second quarter of 2015.
Backlog value increased 21% over the prior year to $3.7 billion, while the number of homes in backlog increased 8% to 9,679 homes. The average price of homes in backlog was $387,000, which is up 13% over last year and up 5% from the average selling price of homes delivered in the current quarter.
The Company's financial services operations reported second quarter pretax income of $17 million compared with $10 million in 2015. Higher pretax income for the period was the result of higher closing volumes in the company's home building operations and a favorable interest rate environment. Mortgage capture rate for the quarter was 81%, compared with 83% in the prior year.
During the quarter, PulteGroup repurchased 2.6 million common shares for $48 million, or an average price of $18.53 per share. The Company also used available cash to retire $465 million of bonds which matured during the second quarter.
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.