Q1 2025 PulteGroup Inc Earnings Call
Good morning and thank you for standing by. My name is Calvin and I will be your conference operator today. At this time I would like to welcome everyone to the PulteGroup Inc. Q1 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speakers or marks, there will be a question and answer session. If you would 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, press star one again. Thank you. I would now like to turn the call over to James Zener, please go ahead.
James Zeumer: Great, Calvin, thank you. Good morning and welcome to today's call.
James Zeumer: We look forward to discussing our first quarter operating and financial results.
James Zeumer: With me today are Ryan Marshall, as in CEO , and James Ossowski, Executive Vice President, CFO
James Zeumer: As always, a company of orange release and this morning's presentation have been posted to our corporate website at PulteGroup.com We'll also post an audio replay of this call later today
I would highlight...
James Zeumer: Today's presentation includes forward-looking statements about the company's expected future performance.
James Zeumer: Actual results could differ materially when most suggested by our comments today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation.
James Zeumer: These are his factors and other key information in our detailed and RSCC filings including our annual quarterly reports.
James Zeumer: Now let me turn the call over to Ryan Marshall, right? Thanks, Jim, and good morning. I appreciate the opportunity to speak with everyone today. In addition to discussing PulteGroup's Q1 results this morning, I will also share our views on the current macro environment. Thank you very much.
James Zeumer: and Howard Business Model, an execution against our strategic initiatives are helping us navigate today's evolving market conditions.
James Zeumer: Let me start by recognizing the incredible work our teams did in delivering PulteGroup's strong first quarter results
James Zeumer: Given the cross-currents the housing industry has encountered in 2025, we believe our results show the value of PulteGroup's proven operating model, balance portfolio, and the expertise of our local operating teams
James Zeumer: In what proved to be a dynamic operating environment, we met or exceeded our guidance into delivering over 6,500 homes.
James Zeumer: Gross margins of 27.5% that income of $523 million. And most importantly, a trailing 12-month return on equity of 25.4%.
Thank you.
James Zeumer: As the country moves through economic cycles, the housing industry will inevitably encounter periods when we are experiencing changes in the operating environment.
James Zeumer: I truly believe that the balanced and highly diversified operating model that we have built over the past decade in combination with our strategic focus on generating high returns over the housing cycle offer important
and competitive advantages.
James Zeumer: Our national footprint and strategy of serving all buyer groups with a targeted offering of speck and built-of-order homes, along with our broader capacity to use both price and or taste to drive returns
James Zeumer: Giver Operator's more flexibility when navigating periods of economic transition.
James Zeumer: In the back half of 2024, many of our meetings with analysts and investors included questions about housing demand and the state of the housing cycle. In response to these questions, we indicated that the spring selling season of 2025 would provide the best opportunity to assess the condition of today's home buying consumer.
James Zeumer: Having reached the midway point of the spring-cellen season, I wanted to provide a few thoughts on what we've experienced and how we're responding.
James Zeumer: First and foremost, I strongly believe people still aspire to homeownership, and if you can provide the right value or create equation, they are excited to get into a new home.
James Zeumer: We saw this as the first quarter progressed and demonstrated a typical seasonal pattern with traffic, growth orders, and that new order is trending higher as we move through the quarter.
James Zeumer: Within the quarter, we also saw the level of home buying activity respond positively to the 30-year mortgage rate dropping below 7%, which allowed roughly 20% of our divisions to increase prices within many of our communities.
James Zeumer: Consistent with the relative strength we've seen among move-up and active adult buyers over the past few quarters .
James Zeumer: We saw the average spend on options and law premiums per home, climbed to $110,000 in Q1.
James Zeumer: This is up from the $102,000 and $107,000 in the first and fourth quarters respectively a last year.
James Zeumer: The financial strength of move up and active adult home buyers is why we have purposely aligned 60% of our portfolio to serve these key buyer groups. However,
James Zeumer: The quarter also saw consumers continuing to face affordability challenges that exist for would-be home buyers in Metro regions across the country.
James Zeumer: From the high absolute selling prices of today's homes to the resulting height, monthly mortgage payments, consumers are struggling with the affordability challenges when it comes to purchasing a home.
James Zeumer: These headwinds have only been exacerbated recently by growing concerns about the potential for a slowing economy.
Speaker Change: As one of the nation's largest home builders, we have developed and deployed a variety of tools to help consumers overcome their personal home ownership hurdles.
James Zeumer: This includes offering new product designs and more efficient floor plans as well as offering meaningful incentives including programs that can offer consumers a below market rate on a full 30 year fixed rate mortgage.
James Zeumer: We leaned into incentives a little more heavily in the first quarter as we executed on our plan to reduce excess spec inventory by actively selling our in-process and finish spec inventory while also adjusting our start pace to better match current demand.
James Zeumer: As a result, our incentive rate increased 8% for the period, but we lowered specs to 47% of production down from 53% in the fourth quarter, while still reporting strong gross margins of 27.5%
and some
James Zeumer: Fire Interest and Activity in the first quarter work directionally in line with our planning expectations heading into the period. As we've moved from March to April , however, we have seen consumers at all price points impacted by changing macro conditions and any resulting decline in overall consumer confidence.
James Zeumer: Whether it's the volatility in the stock market concerns about tariff induced inflation, the fluctuation in interest rates, or the growing talk of recession, demand in April has been more volatile and less predictable day-to-day .
James Zeumer: We can certainly empathize with our customer's concerns as our business has happened to adapt and manage to constantly changing
James Zeumer: and shifting tariff landscape, the potential cost of which could be significant.
James Zeumer: While our Q1 build costs were effectively flat on a year-over-year basis, proposed tariffs had the potential to add thousands of dollars to the cost of construction
Speaker Change: Let me now turn the call over to Jim Ossowski. You will recall that in February Jim officially assumed his responsibilities as PulteGroup's Chief Financial Officer
Speaker Change: I'm excited to have him in his new role, and I know that our organization will benefit greatly from Jim's leadership and experience. After his remarks, I will offer some additional thoughts on how we plan to manage our business given the current operating environment. Jim
Jim Olszewski: Thank you, Ryan and good morning. I appreciate the opportunity to review PulteGroup's quarterly results. In the first quarter, our net new orders totaled 7,765 homes, which is a decrease of 7% from the first quarter of 2024.
Jim Olszewski: Lower orders in the period were driven primarily by a 10% increase in net new orders per store, which is partially offset by the 3% increase in our average community count in 961 for the quarter
Jim Olszewski: Notably, the cancellation rate as a percentage of starting backlog increased only slightly to 11%.
Prepare with 10% in the prior year. [inaudible]
Jim Olszewski: Specific to the quarter, we would say that the man conditions followed a pretty typical seasonal pattern with net in order is increasing as the court had progressed.
Jim Olszewski: On a sequential basis, then new orders increase 26% from the fourth quarter of 2024.
Jim Olszewski: This increases however below historic averages reflects a consumer that is carefully assessing the high cost of home ownership and more recently concerns about the economy and overall employment conditions.
Jim Olszewski: On a year-over-year basis, net new orders by first-time buyers were down at 11% .
Jim Olszewski: Move-up buyers were down 4% and I have to build buyers climb 5%
Jim Olszewski: We continue to realize meaningful relative outperformance among our move-up and active at all consumers, as they have greater financial flexibility and can more easily adjust to market changes.
Jim Olszewski: That being said, the extreme volatility in the financial markets can cause even these consumers to pause for making the large purchase [inaudible]
Jim Olszewski: Moving from orders to closings, wholesale revenues in the first quarter, total $3.7 billion down 2% from the $3.8 billion that revenues generate advice [inaudible]
Thank you very much.
Jim Olszewski: Lower-home sale revenues for the period were the result of 7% decrease in closings to 6,580 homes. Larger offset by a 6% increase in average sales price to $570,000.
Jim Olszewski: By BioGroup, the breakdown in closing into the first quarter was 39% first time, 40% move up, and 21% act of adults [inaudible]
Jim Olszewski: In the first quarter of last year, her closings were comprised of 42% first time, 35% move up, and 23% active adult.
Jim Olszewski: As we have discussed on prior calls, we have experienced a modest decline in the percentage of closings from active and old buyers driven by the close out several dealt with communities where the past 12 months, 12 plus months.
Jim Olszewski: I'm happy to report that we are extremely pleased with fire response to recent Dell Web openings in Cleveland, Indianapolis, and Southern California.
Jim Olszewski: We're equally excited about the additional web community openings coming later this year.
Jim Olszewski: Closing from these new web communities will be more heavily weighted towards 2026 and beyond, getting these communities open for sales is a critical first step.
Jim Olszewski: Based on sales and closing activities in the period, we ended the quarter with a backlog of 11,335 homes, which is down 16% from last year.
Jim Olszewski: On a dollar basis, our backlog was $7.2 million, which is down 12% compared with last year's first quarter [inaudible]
Speaker Change: As Ryan mentioned earlier, we adjusted our start space as part of a process lower specumentary in alignment with our target range.
Ryan Marshall: In the first quarter, we started approximately 6,700 homes which is down from the approximately 7,500 homes we started in both Q1 and Q4 of last year [inaudible]
Ryan Marshall: Reflective of this action, winner of the first quarter with 16,548 homes in production, of which 7,840 respects for this
Ryan Marshall: In just one quarter, we reduced our spec halfway over 900 homes, lowering our spec percentage from 53% to 47% of inventory.
Ryan Marshall: This moves us closer to our target range of 40% to 45% from overall units in production.
Ryan Marshall: Of our spec units, 1,800 were completed at quarter end, and we expect finish spec to continue trending lower in the slowdown in our star space.
Ryan Marshall: The goal in aggressively managing our production pipeline is to more effectively balance the need to have units available to meet that the immediate buyer demand while still selling from a position of strength within our communities.
Ryan Marshall: In the current environment, we believe prioritizing price and margin over buying makes most strategic sense [inaudible]
Ryan Marshall: Based on recent salespaces and the midst of units under construction, we expected the deliver between 7,400 and 7,800 closings in the second quarter.
Ryan Marshall: Well, buyer demand over the next few months will be a key determinant given in more than 16,000 units we have uttered reduction in cycle times of approximately 110 days. We currently expect to deliver between 29,000 and 30,000 homes for the full year, slightly below our prior guidance of 31,000.
Ryan Marshall: Embedded within our updated delivery guide is our expectation that quarterly community count will be three to five percent higher in 2025 than in the comparable prior year period.
Ryan Marshall: Consisting with our first quarter results and our previous guidance, we currently expect the average sales price of closings to be the range of $560,000 to $570,000 in each of the remaining three quarters
Ryan Marshall: Continuing down on the income statement, our gross margin in the first quarter was 27.5%, which is flat on a sequential basis from the fourth quarter, but down from a very strong Q1 of 2024.
Ryan Marshall: Sales incentives increased at 8% in the quarter. First margins in the period benefits from a favorable mix, homes closed, but in terms of geography and fire groups.
Ryan Marshall: The other relates to gross margins going forward. We continue to expect gross margins in the second quarter to be in the range of 26.5% to 27.0% and we now expect gross margins in the third and fourth quarters to be in the range of 26.0% to 26.5% down slightly from our prior range of 26.5%.
27.0%
at the elevated levels experienced in the first quarter.
Further, Gross Margin's in the back half of the year.
Ryan Marshall: reflect the estimated impact of tariffs that have been imposed which are expected to increase our house cost by an estimated 1% of average selling price.
Ryan Marshall: In the first quarter, we reported SGNA expensive $393 million, or 10.5% of home sale revenues, which compares with prior year reported SGNA expensive $358 million, or 90.4% of home sale revenues
Ryan Marshall: Reported prior your S.G.A. expense includes a pretext insurance benefit of $27.90.
Thank you.
Ryan Marshall: Given the uncertainties of the current operating environment, we continue to carefully assess S-GNA expenditures as we seek to maintain an appropriate overhead structure.
Ryan Marshall: Financial Services Operations reported first quarter of pre-tax income of $36 million, compared with $41 million in the press.
Ryan Marshall: The lower pretext income primarily reflects the impact of lower closing bonds within the company's home-building operations.
Ryan Marshall: Fapture rate in the quarter increased at 86% up from 84% last year.
Ryan Marshall: One of the first quarter, our reported pre-dex income was $621 million, and we reported a tax expense of $158 million.
or an effective tax rate of 23.2%
Ryan Marshall: Our first quarter effective tax rate was benefited by renewable energy tax credits and stock compensation
Ryan Marshall: At this time, we continued to expect our tax rate to be approximately 24.5%, excluding the impact of the need to screen during the specific tax events.
Ryan Marshall: Our first quarter, we reported net income of 523 million for $2.57 per share.
Ryan Marshall: In the first quarter of 2024, reported net income of $663 million and $3.10 per share.
Ryan Marshall: Barrier Resulter, Inc. of the $65 million dollars for 23 cents per share and pre-tax benefits related to the sale of a joint venture in a four mentioned insurance.
Thank you.
Ryan Marshall: Earnings per share for the quarter was calculated based on 204 million diluted shares, which is down 5% from the prior year to continue to systematically revertures our shares.
Ryan Marshall: In the first quarter of 2025, we repurchase $2.8 million shares for $300 million or an average price of $108.03 per share.
Ryan Marshall: As noting this morning's release, meaning in the first quarter of $1.9 billion remaining under our existing share of repurchase authorization.
Ryan Marshall: In addition to repurchasing our shares, in the first quarter we allocated $1.2 billion to land acquisition development, in Q1, 52% of our spend was associated with the development of our existing land assets
Ryan Marshall: As Ryan noted, given today's macro uncertainties, we are asking our land teams to review project returns and confirm they still meet our hurdle rates, given changing market conditions
Ryan Marshall: We are confident that in this type of operating environment are disciplined and underwriting process for service well, as it is done during prior periods of time.
Ryan Marshall: Thank you for watching. Be safe out there. Thanks for watching. Be well. Stay healthy.
Ryan Marshall: Given our current pace of sales and starts, we now expect our land investment in 2025 to be approximately $5 billion. We remain positive on the long-term outlook for housing, but we are prepared to adjust our near-term land spend in response to changes up or down in buyer demand.
Ryan Marshall: While we were slowing projected land spend, we are still prepared to use our financial strength to capitalize on land opportunities that could develop during these choppy or market conditions.
Ryan Marshall: Based on the updated expectations for our home building operations, we continue to expect operating fast fuller generation from the full year to be approximately $1.4 billion.
Thank you. Thank you. Thank you.
Ryan Marshall: We have such flexibility because we already control a strong land pipeline that can support the future growth of our business platform.
Ryan Marshall: At the end of the first quarter, PulteGroup had 244,000 lots under control, of which 59% were controlled via option Just the past year, we have increased our option lot count by almost 30% while reducing our own lot count at the same time
Ryan Marshall: I want to underscore that whether these land options are with the underlying land seller or one-off transactions with a land banker, our ability to mitigate market risk is as important as the rate returned when assessing each transaction.
Ryan Marshall: An ideal basis continues strength of balance in evaluating the profitability and risk management opportunities that might result from optioning the underlying land person.
Ryan Marshall: And finally, I am pleased to say that PulteGroup remains in an exceptionally strong financial position, as it ended according with a debt to capital ratio of 11.7% and with $1.3 billion of cash.
Ryan Marshall: Further validating the strength of our operating and financial positions, Moody, Moody's recently upgraded our senior underscored notes to the AA1. Now, let me turn the call back to Ryan for some final time.
Ryan Marshall: Thanks Jim, given our backlog, units under production and current build cycle we now expect deliver between 29,000 and 30,000 homes in 2025 assuming home buying demand is sufficient and in the lines with our prioritizing price over pace to drive your term returns.
Ryan Marshall: As Jim detailed, we lowered our starts pace in the first quarter by approximately 10%. Our strategy has always been about balancing price and pace to drive high returns.
Ryan Marshall: Rather than to write a chase of volume number, we will continue with our efforts to reduce any excess spec inventory and move closer to our target of 40 to 45 percent.
Ryan Marshall: We will remain agile and are prepared to make further adjustments up or down [inaudible]
Ryan Marshall: Tour Startspace in response to changes in buyer demand.
Ryan Marshall: For PulteGroup, balancing price and pace with the bias towards price has resulted in gross margin being an important driver of our returns.
Ryan Marshall: Our Q1 gross margin of 27.5% is reflective of our approach. This is our Q1 gross margin of 27.5% is reflective of our approach.
Ryan Marshall: In addition to driving top-tier returns, her industry leading gross marketing gives our divisions more room to maneuver and managing their communities on a day-to-day basis.
Ryan Marshall: In 2024, we invested $5.3 billion in land acquisition and development and entered 2025 with plans to increase our land spend to $5.5 billion [inaudible]
Ryan Marshall: Given greater macroeconomic uncertainty, we are recalibrating our land spend and expect it will be closer to $5 billion to $1 billion.
Ryan Marshall: Given the strength of our existing land pipeline, deferring a small percentage of our land acquisition spend will not impact our ability to grow our operating platform in the future [inaudible]
Ryan Marshall: For any changes, we will implement over the near-term in response to evolving demand conditions. What won't change is our focus on delivering high returns over the housing cycle.
Ryan Marshall: As we have demonstrated working through the myriad of macro challenges of the past five years, generating high returns requires decision-making that is consistently in alignment with long-term goals and objectives [inaudible]
Ryan Marshall: We have remained disciplined in our business practices while making prudent adjustments such as moderating our starts pace and response to changing market conditions as we work to successfully navigate the current environment.
Ryan Marshall: We continue to believe in the long-term demand dynamics within the housing industry. In a country that has a growing population and has already short several million housing units, it is reasonable to expect that demand will be there in the future.
Ryan Marshall: The gym suggested earlier, disruptions in the marketplace can create exciting opportunities that have the potential to accelerate future performance . .
Ryan Marshall: We certainly had the balance sheet strength to take advantage of any such opportunities should they emerge.
Ryan Marshall: In closing, I want to highlight that we've worked hard over the past decade to build a business platform that is arguably unmatched in terms of its presence across major markets and buyer groups.
Ryan Marshall: Our performance over time has demonstrated the competitive advantages of such a portfolio and driving high returns and navigating through market changes .
Ryan Marshall: Further, we've shown our commitment to intelligently allocate capital to support the growth of PulteGroup, while consistently returning funds to shareholders through dividends and share repurchases.
Ryan Marshall: And finally, I want to again thank our entire organization for their efforts in delivering an unmatched home-buying experience to our customers [inaudible]
Ryan Marshall: We don't talk about it enough, but I want to recognize our divisions for reaching record build quality and record net promoter scores, all while creating a culture that once again...
Ryan Marshall: put PulteGroup on 4GENT's top 100 best companies to work for a list for the fifth year in a row. You are truly the best in the business.
Ryan Marshall: Now let me turn the call over to James over. Thanks, Ryan. We're now fair to open the call to 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. Thank you, and I'll now ask the operator to open up Q&A.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we answer the Q&A session, we ask that you please limit your input to one question and one follow-off. And at this time, if you would like to remind everyone 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. One moment please for your first question. Thank you.
Speaker Change: Your first question comes from the line of John Lovallo, a few BS, please go ahead [inaudible]
Good morning guys, thanks for taking my questions.
John Lavallo: The first one, I just wanted to kind of zone in on the second half, Margin Expectations and maybe a two-parter year.
Speaker Change: I mean, I guess we're the incentives on orders in the first quarter consistent with the eight percent
Speaker Change: that were on deliveries. And then can you also provide any color on the two half or the second half tariff impact that you're expecting, you know, the total dollars for home, which products and sort of the ability to push back on suppliers?
John Lavallo: Yeah, John , so the incentive load that we've assumed is consistent with the 8% that we realized in Q1, so that's embedded in the marching guide.
and that's throughout all four quarters of this year.
Speaker Change: Relating to the tariff question mentioned it's 1% of average sales price so...
Speaker Change: You know, we're in the range of $5,000 on average and it will impact every single price point and consumer group that we serve. You know, there might be a few minor nuances, but it's pretty broad across the spectrum. [inaudible]
Speaker Change: You know, our procurement teams are cycle tested, they're the best in the business, they do a really nice job You know, Jim highlighted that we've kept our build costs flat on a year over your basis and so I think that's a tremendous accomplishment [inaudible]
Speaker Change: We've got good relationships with our suppliers, we want it to be a win-win [inaudible]
Speaker Change: But, you know, we think we offer value in the volume and predictability and so we do look for, you know, better pricing than I think what you'd find in kind of the broader home building universe.
Speaker Change: I think every business is dealing with that at cost and we're going to work to minimize it. I think keeping it to the 1% that we've talked about is...
Speaker Change: significantly less than what you're hearing from the broader Helm billy universe, so I think you're seeing pretty good execution from us in the guide that we've given about 1% of ASP.
Speaker Change: Yeah, we would agree on a percent with that. And then maybe the second question just on the share we purchased is 300 million in the quarter, which is a really good level. Just I guess the question wouldn't be that that's consistent with what you guys have done over the past couple quarters. You know, why not lean a little bit more as the stock you know pulled back.
Speaker Change: Yeah, John , it's, look, it's a great question. 300 million dollars
Speaker Change: is significantly more than pocket change, so we feel pretty good about what we did, our board authorized an incremental $1.5 billion in share authorization in January . Thank you very much.
So our remaining authorization is $1.9 billion.
Speaker Change: We've had a practice of reporting the news as opposed to giving it guidance. We do think that the equities of value today, and so we'll check back in with you at the end of the second quarter and let where we land on Q2 repurchases.
All right. Thanks, Ryan.
Speaker Change: Your next question comes from the line of Stephen Kim of Evercore ISI, please go ahead.
Stephen Kim: Yeah, thanks very much, guys. Appreciate it as strong results. Wanted to sort of follow up on a couple of John's questions there. So, one with respect to your cash flow guide, I think you said 1.4 billion.
Stephen Kim: Does this still assume no reduction in homes under construction or homes in progress? Because it looked like that actually would be an additional contributor to cash flow, and then you indicated the tariff increase.
Stephen Kim: Amal, actually been recognized or realized in negotiations thus far versus simply being you know proactively cautious.
Stephen Kim: I'll take the first question. So on the cash flow guide, the $1.4 billion, assumes kind of the homes that we need to put into production over the balance of the year to hit our $29,000.
Stephen Kim: to 30,000 guys that we've given. We certainly had the capability to do more than that if the opportunity was there, but that's really what's been factored in. One of the things that I highlighted in my section, Stephen, was that we've adjusted our land spend. As we've looked at development opportunities over the balance of the year and acquisition, we factor that into the operating cash flow guide.
Speaker Change: Stephen, your second question you broke up just a little bit, would you mind repeating that about Tariffs?
Speaker Change: Yeah, apologies. It was really that you would guide it that, you know, to the one percentage point higher cost. And my question was how much of this has actually been recognized or realized?
Speaker Change: in your negotiations with your vendors and providers versus simply you being cautious in your outlook. So I'm wondering how much of this has actually been seen thus far in terms of your negotiation.
Speaker Change: Yes, Stephen the Ladder, so, you know, things that are already in production, there's no tariff impact on that and...
Speaker Change: You know, things that were already on the water, you know, largely there's no tariff impact there either so it's more about looking at our supply chain where things come from and anticipating. Thank you very much.
Speaker Change: What the impact could look like as we hit the fourth quarter. So, you know, we're not expecting much of any impact until probably mid to late fourth quarter closings of this year.
Speaker Change: Okay, great, that's helpful. The second question I had relates to the overall environment. I think that, you know, you did a good job of laying out like sort of what you've been seeing in terms of market conditions, but one of the things that seems to be...
Speaker Change: Manifesting here in what we've been hearing from during earnings season is that there is a certain level of demand that is fairly persistent and robust
But...
Speaker Change: If you try to exceed the volume above that amount, if I try to entice you know, entice.
Additional Buyers
beyond that sort of strong core you might say. [inaudible] I'm sorry, I'm sorry
Speaker Change: You wind up having to give away significant price and margin in order to achieve that. And so when I wanted to know if you kind of think that that's a fair way of characterizing the market conditions today and if that is different in a meaningful way from what you have seen going back 20, 30 years.
Speaker Change: But we've always had, you know, probably a slight bias toward gross margins
Speaker Change: The reason we continue to deliver industry leading gross margins in this environment I think you're spot on there is a underlying underlying.
Speaker Change: Desire from Home Ownership, and there's a lot of buyers that still want to buy homes, and we're selling them those homes at very good profitability and good value to the consumer as well.
Speaker Change: and while all consumers and price points are getting incentives, there's certainly more or a higher percentage that are going into that first time buyer group or affordabilities, certainly more challenge. So, look, in this environment,
Speaker Change: We're still really confident about the long term. We know that we're going to sell a lot of homes [inaudible]
Speaker Change: and the operating platform that we have with over 60% of our consumer mix being an active adult and move up. We think we're really well positioned to continue to exceed despite the challenging macro. Thank you very much for your time.
Great. Thanks very much, guys.
Thank you. Bye-bye.
Speaker Change: For next question, comes from the line of Sam Reid of Wells Fargo. Please go ahead to the next question.
Sam Reed: Awesome, thanks so much. Wanting to actually disaggregate the margin commentary of this war here, especially on the tariff impact?
Sam Reed: It sounds like the impact from care specifically will be more weighted to that fourth quarter period if I'm hearing correctly. Thank you very much.
Sam Reed: So maybe could you just talk to the change in guidance as it relates to the third quarter and just maybe bucket out intensive versus any other cost buckets we should be thinking of in the context of that fresh you three margin guide.
Great questions, Sam. So, you know, as we look...
Speaker Change: Q3 and Q4. You know, as Ryan said, we are expecting our incentives to stay at that elevated level for the balance of the year. One of the things we have done very well in the first quarter, we talked about it as we've been selling some of our speculative inventory that's either in process or finished, so we will start to see some of that.
Speaker Change: come through in our Q3 and our Q4, and then as Ryan alluded to, really we will see the tariff impact primarily in the fourth quarter. So we still feel really good about it. You know, as we sit here at 26.0 to 26.5% for the back half of the year, we're really happy and pleased with what our operators are doing.
Speaker Change: No, that helps. And then you already touched a little bit on this in the prepared remarks, but really wanted to get a better sense for how traffic trended in your Dell web communities in early April , especially on the back of equity market volatility. You know, I know this buyer tends to be more conservative, more likely to fund a purchase with investment savings than some of your other buy or cohorts.
Speaker Change: So just curious if you have any additional detail on what you might have seen in some of the Dell web traffic data and perhaps even some of the early traffic to order conversion data. Thanks.
Ryan Marshall: Yeah, Sam, it's Ryan. Thanks for the question. The Delwa buyer continues to be a real shining star in our overall portfolio. We have mentioned in prior periods, but it's a buyer that is more sensitive to macro.
Ryan Marshall: and Market Volatility. But it doesn't mean that they go away. In fact, you know, you look at the signups that we had in the most recent quarter. It was one of our better performing consumer groups, along with the move up. So, we feel good about it. As it relates to April , you know, April always takes a little bit of a seasonal shift down in signups. And we certainly saw that this year. The one thing that we would note about April is the day-to-day volatility was...
Ryan Marshall: somewhat unusual, and I think that's totally understandable given what the consumers dealing with.
Ryan Marshall: There's a lot of noise in the macro, concerns about recessions, stock market volatility, interest rates up and down.
Ryan Marshall: You know, the fears about tariff induced inflation, et cetera. So, you know, I think, um,
Ryan Marshall: We're short millions and millions of homes in this country and given the way that we're balancing more of the focus on price versus pace going back to Stephen's comment.
Ryan Marshall: You know, I think we're as well positioned as anybody in the space to continue to have success in this environment . . .
Speaker Change: No, that helps a lot. Thanks so much, guys. I'll pass it on
Thanks, John.
Speaker Change: Your next question comes from the line of Michael Rehaut of J.P. Morgan, please go ahead.
Michael Rehod: Thanks. Good morning, everyone. Thanks for taking my questions and a nice quarter in a tough environment.
Thank you.
Speaker Change: First question, you know, I wanted to push a little bit and kind of get a little bit better or more granularity on the changes and guidance in terms of the change also in the closings and obviously it kind of speaks to the price over paced preference.
Ryan Marshall: You know, at the same crime line, he also said, in the past, you're not going to be marching proud You're not going to be proud.
Ryan Marshall: and so appreciating kind of both of those comments with maybe the tilt towards price.
More often than not, I'm curious if...
Ryan Marshall: You know the reduction in closing guidance for the year is also in some ways reflective of some of the volatility in April .
Ryan Marshall: as much as, you know, maybe orders coming in a little less, and at least we were expecting for the March quarter.
Ryan Marshall: And, you know, if, you know, that volatility in April kind of continues.
Maybe it doesn't rebound to something a little more stable. [inaudible]
Ryan Marshall: The April's volatility which I'm sure has impacted perhaps volumes to a decent extent.
Ryan Marshall: Good morning, Mike. Thanks for the question. It's Ryan. Let me maybe first start with the guide and in terms of the full unit guide.
as we move through Q1.
Q1 results were largely in line with our planning expectations
Ryan Marshall: You know, it wasn't the most robust spring-selling season, but it wasn't the worst that we've ever seen either. So, you know, largely what we expected. April definitely had more volatility. [inaudible]
Ryan Marshall: You know, the tricky part is we're, you know, 22 some odd days into April, so, you know, I don't think you want to overreact to 22 days of data, but we did use that to come up with a modified guide for the balance of the year.
Ryan Marshall: We think we've incorporated everything that we know. There's a lot that we don't know out there but you know what we're trying to convey is confidence to the investment community that we've got an unbelievable platform. We've got a lot of confidence to the investment community that we've got an unbelievable platform.
Ryan Marshall: Our balance sheet is world class and rock solid, we've got a lot of cash, we've got low debt We've got the ability to do a lot of things in this environment and
Ryan Marshall: You know, and to really put some distance between us and the rest of the competitive set, we still have the capacity like the Bill 31,000 homes.
Ryan Marshall: Our procurement teams, our construction teams, the land is there. So, if we took the other side of the coin and say, hey, what if confidence in the consumer were to improve, then what? Well, we're still really well positioned to take advantage of that as well. So,
I think, you know, we want you to hear...
We're being very balanced, very pragmatic.
Ryan Marshall: And, you know, we're on this. We're not in panic mode. There's no reason to be in panic mode because we know that we've just got an unbelievable operating platform. In terms of being margin proud, we're also not going to be martian stupid. [inaudible]
Ryan Marshall: And, you know, Stephen's question in this environment, we know there's this embedded level of underlying demand that's there.
Ryan Marshall: We're working to drive high returns. You know, if we saw the ability to drive a little more volume without given excessive discounts, I think you'd see us do that, but that's not the environment that we're in now.
Ryan Marshall: Okay, no, I appreciate the detailed answer there, Ryan. I mean, it kind of sounds like, in effect, you are faking in, you know, again, the change in guidance, being, you know, the April volatility and you remain relatively confident on price. If I have to kind of boil that down, it's, it's very right.
Okay.
Ryan Marshall: So, secondly, again, just maybe a little bit more clarity on the tariffs, it does appear, you know, that 1% of ASP
It's sort of an estimate if I'm hearing that right. [inaudible]
Ryan Marshall: Um really maybe you're saying back half or half of the fourth quarter impact [inaudible]
Speaker Change: So number one, I would just love to get a sense, you know, where the buckets that that 1% comes from is it kind of just kind of spread all across the board or is there a couple leading categories that you're focusing on in terms of the, you know, input mix.
Speaker Change: The change in back half-grossed margin guide is more driven by the spec reduction .
Speaker Change: more than anything else, and just wondering if there's any other main drivers there as well.
Thanks
Speaker Change: Yeah, so Mike, there's a lot there, I'll try and pick through it. In terms of tariffs, it is back half a quarter. We've estimated it to be 1% in terms of big categories, plumbing, specifically tank water heaters, porcelain.
Speaker Change: HVAC parts, especially things with HVAC parts that come out of China.
Speaker Change: Tyle Floring, the global 10% tariff that affects every country and most of the floring comes from somewhere else.
Speaker Change: That's all wrapped up in our 1% estimate. In terms of the margin guide in the back half, it's...
partly because of the incentive load.
Speaker Change: It's also partly because of higher land costs, but that was embedded in our guide to begin with. And if you compare our current guide Q4 to the prior guide, we're down 50 basis points.
Speaker Change: And that's really reflective of the updated tariff information and the incentive code that we've talked about.
Thank you.
Perfect. Thanks so much.
Speaker Change: Your next question comes from the line of Matthew Bouley of Barclays. Please go ahead.
Matthew Bewley: Good morning everyone, thanks for taking the questions and welcome Jim to the call.
Matthew Bewley: I wanted to ask on that land spend guide, bringing that to 5 billion from 5 and a half billion. I guess I don't know if that also includes higher development costs following the tariffs on a dollar basis, so just curious on that. But then more broadly, I guess what does that signal around your growth intentions perhaps into 2026, would a portion of that land spend be impacting community growth as soon as next year or just any other color on how that would flow into your growth?
Robert Expectations. Thank you.
Speaker Change: Yeah Matt, thanks for the question and your point, it's a hell of a quarter for Jim to have his first call but I'm thrilled to have him here with us and you know he's been an integral part of our team for a long time. In turn to the land spend guide I think one of the most important decisions that we make is manage the team's capital allocation.
Speaker Change: specifically how much money we're going to spend on land. We do have ambitious growth plans. We've talked about our long-term growth guide of being five to ten percent and you know we're we're confident in that based on the land pipeline that we've been investing in for the last several years.
Speaker Change: And so, being a little more prudent in this environment and trimming...
The Landspend,
Speaker Change: And it's really about delaying things a little bit as opposed to cancelling [inaudible]
Speaker Change: You know, there's a, if it were a, a market where we were...
Speaker Change: Really, really concerned. You might see canceling the bland contracts. That's just not where we're at.
Speaker Change: So, you know, in terms of our ability to deliver 26 and 27, a little bit of a delay or a pause in spend this year is not going to have an impact on that.
We'll also see that there's an opportunity.
Speaker Change: to make the land spend go a little further, meaning 5 billion made by almost as much as what 5.5 billion did. You know, we haven't seen that emerge yet, but that's certainly something that we're looking for.
Okay, got a thanks for that, Ryan, and then... [inaudible]
Speaker Change: Secondly, drilling into the back of the gross margin side, you know, the assumption around assuming...
Speaker Change: You know, generally a seasonally stronger time for housing demands. I just wanted to double click on kind of why that's the right assumption kind of what what you think kind of typically happens to incentives as you would move into the summer months and all that. Or as the assumption just, you know, you're going to be able to reduce spec enough that you just wouldn't need to tweak incentives any further. So any more color on that. Thank you.
Speaker Change: Matthew, that's a great question, and you hit on it right at the very end there. As we look at it, as we started to trim our speculative inventory, we've been doing a really nice job, chewing through that in the first quarter, as we start to see that get down into our target range of 45% .
Speaker Change: We see the opportunities that ease off of that a little bit. Now, the environment may require us to do other things in order to keep moving homes, but as we get our specumentarian balance, we think we have the opportunity lower in size.
All right. Thank you, Jim. Good luck, guys.
Speaker Change: Thank you for watching. Please subscribe to my channel. And if you like my videos, please give me a thumbs up. And I'll see you in the next video.
Speaker Change: Your next question comes from the line of Mike Dahl of RBC Capital Markets. Please go ahead.
Mike Dahl: Morning now, thanks for taking my questions and any adjunct congrats on the new role.
Speaker Change: I wanted to drill into the order case a little bit more, so your sales per community were down 10% in the quarter to talk about April volatility. Can you put a finer point on your year on year in Paris and in April sales pace right now and then maybe to take it a step further? You know, I understand the seasonal progression of increases.
Speaker Change: through the quarter, but maybe you could give us some help on how the year-on-year comparisons looked in Jan Fed and March.
Speaker Change: Yeah, Mike, you know, I don't know that we're going to slice it quite dead thin. You know, I think we've tried to be really responsive to give kind of detail around spring selling and how things progressed to us.
Speaker Change: January started, I think the way a lot of January's do, you know, I mentioned in our last call that we were seeing some green shoots and February's a good month and March got even better. So spring selling season I think played out the way that we would have expected it in total and Jim had it in some of his prepared remarks. . .
Speaker Change: The seasonal increase from Q4 to Q1 was less than what we would normally expect so you could argue based on that spring-selling season was maybe a little below average. .
Speaker Change: As we moved into April , I think I've said it but I'll reiterate it, we've had more volatility from the consumer than we normally expect and I think the reasons why are very well understood.
Speaker Change: Yeah, I mean, I certainly appreciate that. I just think given the uncertainty out there, you're clearly providing us a lot of helpful detail. There wasn't a quantification for April in light of a lesson.
Ryan Marshall: Normal, seasonal increase in one cue, I would think it would be helpful, but Ryan, I guess maybe I'll jump on that real quick, you know, what we've tried to do is to articulate and quantify that into our full-year volume guide.
Ryan Marshall: You know, you'll have to take our word for it based on April sales, you know, combined with what we did in Q1 but I think the bigger drivers, what's happened in April , we've modified the full year volume guide.
Speaker Change: Hey, Ryan, the second question I had, you mentioned, you know, you mentioned in your open remarks potential for exciting opportunities. You mentioned just in response to Matt's question. Hey, maybe five billion goes further than you would have thought three or six months ago. I think that's kind of alluding to some reset in the land market, but maybe you can give a little more detail. I don't know if anyone's really. [inaudible]
Speaker Change: thinking that this cycle is going to produce the type of distress that we saw the GFC. So are you kind of referencing things that you're currently seeing in the land market? Are you thinking about bigger M&A opportunities? You know, maybe just talk a little bit more about what those comments were geared to? [inaudible]
Speaker Change: Yeah, not really trying to telegraph any kind of hidden messages. They're, you know, probably the, and we've not seen and probably wouldn't expect to have a major reset in the land market.
Speaker Change: You know, other than the, you know, the great financial crisis, land just doesn't seem to go through a reset. It's in short supply.
Speaker Change: It's part of the reason that we're so short housing is because land is so hard to come by so I think land values are going to be pretty terrible [inaudible]
Speaker Change: where, you know, we think that there could be some exciting opportunities, or there are builders that are not as well capitalized or as balance sheet strong is what we are. And for, you know, a number of reasons, they may elect to walk away from something.
Speaker Change: And, you know, that may create some opportunities where, you know, we can step in and grab something at a good value, you know, maybe something that was tied up in a prior value, you know, that we're able to inherit, et cetera. So, time will tell whether or not that plays out, we haven't seen a ton of it yet, but...
Speaker Change: You know, they say hope's not a strategy, but should some of those opportunities emerge were really well positioned in a great financial position to take advantage.
Okay, thank you.
Speaker Change: Your next question comes from the line of Carl Reichardt with DTIG. Please go ahead. Thanks, morning guys. So Ryan, just to drill down an April one more time, when we're talking about volatility, are you referring to foot traffic, conversion rates, or cancellations in terms of the most significant impact on the order volatility?
Speaker Change: Yeah, you know, Carl, when we're talking about volatility, we're talking about rate of daily sales. That's the volatility. You know, the other things have been largely stable, including Canary. [inaudible]
Jim Olszewski: We have not seen a run for the doors from consumers that previously made a decision to buy and are in our backlog that's been really stable and Jim Highlighted, we saw modest, a very small tick up.
Jim Olszewski: in Canary in the first quarter to 1%, and we haven't seen a change in behavior in April either.
Jim Olszewski: Great, thank you, and then we're talking about a couple of the bigger picture stuff for you as you look at your current environment. [inaudible]
He talked last
Jim Olszewski: Call about getting cycle times down to, I think, 100 days in the back half of the year. And I'm also interested in the bigger picture of going to 70% option lots or 59 now. So, but is the current environment impacting either one of those sort of bigger picture goals for you either on cycle times or on your move to option lots do you think? Thanks.
Jim Olszewski: So, cycle time, Carl, we talked about it last quarter. We're basically at 100 days on our single family, which is so mission accomplished there. We don't really expect anymore kind of changes. We're at where we want to be. Jim, you know, quoted, we're at 110 days overall. And what that includes is a lot of our multi family condo buildings that have, you know, much longer cycle time than a single family. So, where we want to be on cycle time?
Jim Olszewski: In terms of land optionality, we make tremendous progress toward that kind of target of 70% with Jim talked about in his preparing remarks, is that we're going to be really pretty in evaluating
when and where and how we drive for optionality. Thank you very much.
Jim Olszewski: When we think about optionality, we're looking to be capital efficient. We're also looking to mitigate risk associated with owning land. We're looking for land.
Jim Olszewski: And so that will be our driving force north star is mitigating risk associated with owning land.
Jim Olszewski: The secondary benefit will be the improved efficiency that we get on return, but we're not going to let the tail wag the dog on this one, Carl [inaudible]
I appreciate it, Ryan. Thanks a lot, guys.
Speaker Change: Your next question comes from the line of Alan Ratner of Salmon and Associates. Please go ahead.
Speaker Change: Hey guys, good morning. Thanks for all the great detail. I know this is not an easy environment to give guidance and give commentary, so we appreciate it.
Speaker Change: First up, Ryan, we've talked about it in the past. I'm surprised it hasn't come up yet on this call, but curious just to get an update on what you're seeing in Florida. I think given your exposure there, given how strong your margins have been in the state.
Speaker Change: That's usually one of the main concerns I hear from investors related to Pulte and for artists certainly.
Speaker Change: seems to be, you know, getting a fair amount of negative headlines in terms of the conditions across the state. So I was hoping you could give, you know, just kind of more granular commentary on what you saw through the quarter and into April in Florida, across your markets and price points.
Speaker Change: Yeah, Alan, Florida is a really important market for us. You know, the thing that I would highlight about our Florida market is the maturity of our business there is in the move up in the active field space.
Speaker Change: And we've talked about that being one of the stronger segments. So I feel from a strategic standpoint, I feel really good about our position in Porta in the near term.
Speaker Change: Resail inventory in Florida across the state is probably higher than what anybody would like to be.
Speaker Change: You know, the last number that I saw is, I think, it's around seven months of total inventory, which is, you know, slightly over the ideal of sex or lower. So, you know, maybe not perfect, but also not in full-blown panic mode either.
Speaker Change: Our Florida business is only down 5% on a year over your basis, so down a little bit but certainly not catastrophic. I probably leave it there as it relates to Florida Alan.
Speaker Change: Okay, I appreciate that. Second, you know, in terms of the cycle time improvements that you've seen and everybody else has seen...
Speaker Change: I'm hearing a lot of quantification on tariffs in terms of the cost impact, but I haven't really heard many builders talk about...
and maybe they don't expect it, any potential disruptions? [inaudible]
Speaker Change: Two to supply chain, two cycle times that might come about
Speaker Change: from all this terrifying noise, you know, is it possible suppliers as their...
Speaker Change: trying to shift production domestically that that creates some pressure here on some US suppliers. I'm just trying to figure out what are the potential landmines that maybe we're not talking about in the supply chain that might come about from tariffs and maybe your answer is there are none because you've done the work but curious your thoughts there.
Speaker Change: Yeah, Alan, there are some and exactly where they're going to be, I can't predict that. I'm not anticipating COVID level disruption in the supply chain, but to assume there's going to be none, I think would be burying your head in the sand.
Speaker Change: There are things going on in the global supply chain that will inevitably [inaudible]
Create hotspots and issues .
Speaker Change: We'll be really transparent with you when we see those and how what we're doing to mitigate it.
Speaker Change: The confidence that I'd give you as I go back to our world class procurement team, they know how to deal with this, they know how to be agile, we're fresh off of... [inaudible]
Three years of dealing with COVID-related supply chain. [inaudible]
Speaker Change: I'm not suggesting this is going to be a lay down, but I think it will be potentially an easier obstacle course to navigate than the COVID supply chain disruptions, but I do think the industry needs to be prepared and not just the industry.
Speaker Change: The world needs to be prepared for some disruptions as a result of things that are going on tear-off-induced in the future.
Appreciate the thoughts. Thanks, guys.
Speaker Change: Here next question comes from the line of Kenneth Zener of Seaport Research Partners. Please go ahead.
Good morning, everybody. Welcome, Jim.
Kenneth Zinner: Good questions here. What do you think your 4Q year-end inventory units are going to be relative to last year's 4Q, and how are your incentives different by segments, you know, so think some tax Florida versus, excuse me, some tax taxes versus your Florida Dahl Web?
Yeah, Ken, um...
Kenneth Zinner: So I'll take the first part and I'll let Jim take the part on margins and incentives. Is it related to inventory? Our target range is 40 to 45% and I think what you've seen from us is we've adjusted our inventory levels.
Kenneth Zinner: in reaction to things that have been going on in the broader market.
Kenneth Zinner: Right now, we're probably in a little bit of a risk off mode of inventory and so you've seen us trimming from where we were to getting back inside of our range We're going to take a look at what we're going to do in the next video.
Kenneth Zinner: In terms of the year-over-year comparison, I think it'll depend but I'd expect us to be within our stated range which I believe would be lower, that it ended up being lower than when we were at the end of Q424 [inaudible]
Kenneth Zinner: Jim, you want to take the other piece? No, the incentives, you know, we don't really slice them that thin. What I would tell you is, you know, incentives can come in different shapes and forms if it's a...
Jim: A speculative inventory unit, maybe there's a discount associated with that. You touched on our active adult buyers, many of those are cash buyers, so maybe the incentive they get is a discount on options that are designed centers. [inaudible]
Jim: You know, it varies across all of them particularly on the first time buyer you know they probably need a little bit more help on the financing side So again incentives come in different shapes and forms and we think we just find the right balance for each individual consumer [inaudible]
Thank you
Jim: Appreciate everybody's time on the call this morning. Actually, we're a few people left in the queue but we've simply run out of time on this call. More available over the remainder of the day. Got any questions? Otherwise, we'll look forward to speaking with you on our second quarter call. Thank you very much.
Jim: Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask to please disconnect your lines.