NAPLES, Fla., July 21, 2016 /PRNewswire/ --
Dear Fellow PulteGroup Shareholders:
While it is unfortunate that it took my actions - and one of the
world's leading activists – to drive value at PulteGroup (NYSE:
PHM) over the last several months, I am encouraged by the initial
shareholder victories that were announced today, and I look forward
to ensuring PulteGroup's management and Board remain focused on
growth of the business as well as accountable to all shareholders
for the benefit of the long term viability of our company.
While much work remains to be done in order for a successful
outcome, the Board appears to be taking the first steps towards
enacting change and addressing the protracted poor share price
performance. While I wish we could have avoided an unnecessary
public dispute, I am pleased that my direct involvement was the
catalyst for significant positive change, including an accelerated
CEO transition, a refreshed Board of Directors with new home
building experience and operational expertise, better utilization
of the balance sheet, a less aggressive land purchase strategy, and
a commitment to reverse the negative and persistent trends in
SG&A.
There is work to be done, as evidenced by our competitor, DR
Horton's, earnings results this morning. For example, year
over year for the quarter, PulteGroup only earned an incremental
$22 million of pretax earnings
despite an increase of $520 million
of revenue; on the other hand, DR Horton made double the
incremental earnings of $45 million
on only $281 million of additional
revenue year over year for the quarter. Poor operating trends
like these tell me there is much to be desired in the operating
performance of PulteGroup, where SG&A was up an astonishing
$62 million for the quarter, year
over year. The Company has said that operating leverage will
come with increasing volumes, and I hope that the Company can start
to deliver on those statements.
I believe that the significant cost problems at PulteGroup are
related to its often semi-custom approach in a production
environment. While I will provide more commentary on this subject
at a later date, I am convinced that the Company's current floor
plans and lack of attention to each buyer group is hurting
profitability. If PulteGroup wants to be a very profitable
builder, it has to start to realize operating efficiencies. I
learned many of these mistakes in the 1960s and never repeated it
again.
Given the positive change that we have driven at the company
over the last four months, I am hopeful that the PulteGroup Board's
willingness to listen to shareholders will continue to create value
for all stakeholders.
To summarize the progress made since my involvement on
April 4, 2016:
Before my
involvement:
|
After my
involvement:
|
1) Poor
shareholder return
|
1) Stock
price increased from $17.21 to $21.10, over $1.3B of value increase
|
2) Excessive land
buying at wrong time in cycle
|
2)
Commitment by PulteGroup to slow land spend
|
3) No Board
experience in homebuilding
|
3) 3 new
Board members – 1 homebuilding
|
4) Poor
utilization of balance sheet
|
4) Large
share buyback for shareholders
|
5) Increasing and
bloated SG&A
|
5)
Commitment by PulteGroup to reduce SG&A
|
6) Lack of
transparency around next CEO
|
6) 2 new
directors for CEO search process
|
After these initial victories for fellow shareholders, I
continue to see opportunities for improvement at PulteGroup in the
following 5 areas:
- Selection of a veteran CEO in a truly fair and expeditious
process. As I indicated in response to the Board's
request for my CEO candidates, it is critical that the process be
expeditious and truly fair. There is no reason for the CEO process
to go beyond July 31, 2016 as I have
previously indicated, and I hope that the new board members on the
search committee will take seriously the criteria that I previously
laid out.
- In a recovering housing market, revenue growth and volume
growth is critical to creating more value for
shareholders. Share buy-backs alone will not be successful
without meaningful growth at PulteGroup. It is incumbent upon
the Board and the next CEO to grow PulteGroup in order to sustain
the level of share price appreciation it desires.
Shareholders deserve a more expeditious CEO search process in order
to understand how much growth will occur at this critical time in
the cycle.
- Reduction of land inventory through accelerated development
and disposition of existing land holdings from PulteGroup's
incredibly large land bank. With its large land position, it is
critical that PulteGroup takes full advantage of current market
conditions to create value from this land.
- More board seats for executives with land and homebuilding
experience. While it is positive news that 3 non-management
Board members have been added, the number of non-management
homebuilding directors is now 1 out of 12. PulteGroup deserves more
industry talent at the Board level.
- Solid operational execution and retention of key
talent. I am saddened to hear of recent departures at
PulteGroup and hope that any reduction of SG&A does not hurt
the company's operations or key employees.
I am pleased by the developments announced today and look
forward to continuing to ensure management and the Board remain
responsive to all of the company's shareholders in an effort to
drive value.
William J. Pulte
Founder & Largest Shareholder
July 21, 2016
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/pultegroup-founder-comments-on-shareholder-victories-at-pultegroup-300302331.html
SOURCE William J. Pulte