PulteGroup, Inc., Bloomfield Hills, Mich. (NYSE:PHM) on Wednesday reported a net loss of $995 million, or $2.63 per share, for its third quarter ended Sept. 30. The loss was due primarily to $986 million, or $2.60 per share, in charges for goodwill impairment, construction and other insurance reserves and land-related charges. The loss compares to a prior year third quarter net loss of $361 million, or $1.15 per share, includes $134 million of merger and debt retirement costs and $164 million of land-related charges.
Analysts were expecting a loss of five cents a share, minus impairments. Actual results, minus impairments, came in at a loss of three cents per share.
Of the charges, $655 million ($1.73) per share was a goodwill write-down based on the 2009 acquisition of Centex Homes and $57 million was related to land.
Home building revenue totaled $1 billion, down 3% from the same quarter last year. The decrease in revenue reflects a 7% decline in closings to 3,865 homes, partially offset by a 5% increase in the Company's average selling price to $265,000.
Net new home orders for the quarter were down 12% from last year's quarter to 3,566 homes, a drop of 15% from the second quarter 2010. During the quarter, the cancellation rate remained flat with second quarter at 19.1%, down from 22.6% in the prior year quarter.
PulteGroup's quarter-end backlog was 5,345 homes valued at $1.4 billion, down sharply from 8,383 homes worth $2.2 billion at the comparable time last year. Prior year backlog included 4,316 homes related to Centex.
The insurance related charges distorted PulteGroup's SG&A, which soared to $417 million, inclusive of the construction and other insurance reserves charges of $272 million ($0.72 per share). Prior year SG&A was $209 million, including $23 million of merger related costs. Excluding land-related charges, interest expense and merger-related costs, home sale gross margin for the third quarter 2010 would have been 16.7%, an increase of 360 basis points over the prior year.
"The insurance adjustment taken in the quarter reflects a combination of factors, including construction claims which developed during the third quarter that, in turn, had a significant impact on actuarial estimates for the risk of potential future claims," said Roger A. Cregg, EVP and CFO. "In fact, approximately 80% of the adjustment relates to the changes in actuarial estimates of possible future expenses."
The company's financial services unit reported pre-tax income of $3 million, up from a pre-tax loss of $9 million in the prior-year quarter. Mortgage capture rate for the quarter was 78%, compared with 86% for the same quarter last year.
The company ended the quarter with a cash balance of $2.7 billion and a net-debt-to-total-capitalization ratio of 42%, down from 46% at the comparable period last year and 43% at year end 2009. On October 20, PulteGroup successfully completed its cash tender offer for $500 million in aggregate principal amount of its outstanding notes, which, the company said, would result in annual cash interest savings of approximately $28 million. It was carrying $6.8 billion in senior debt on its balance sheet at quarter's end.
"PulteGroup's third quarter loss was driven primarily by charges taken in the period for goodwill impairment and insurance reserve adjustments," said Richard J. Dugas, Jr., chairman, president and CEO. "Looking beyond the charges, our homebuilding operations continued to demonstrate year-over-year progress as we execute on our strategies to capture greater operating efficiencies within our homebuilding operations. As industry conditions are expected to remain challenging over the near term, we are continuing to reduce direct construction and overhead costs, and are restructuring our operations to trim 2011 SG&A spending by approximately $100 million on a year-over-year basis. Further, with almost 800 communities nationwide, a robust pipeline of finished lots and a supportive cash position, PulteGroup is in an excellent competitive position and remains focused on achieving its immediate goal of consistent profitability."
Shares of PulteGroup closed down 7.7% Wednesday at $7.45.