Pultegroup, Inc. 2026 Q3 Earnings Call

Jim, please go ahead. Thank you, Erica, and good morning.

I want to thank you for joining today's call as we look forward to discussing PulteGroup's third quarter operating and financial results. On today's call, I'm joined by Ryan Marshall, President and CEO, Jim Ossowski, Executive Vice President and CFO, and David Carrier, Senior Vice President, Finance. A copy of our earnings release and this morning's 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 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 slides.

These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan.

Thanks, Jim, and good morning. I'm very proud of the business results our organization has delivered thus far in 2026. In a world where we can't control global events or macroeconomic conditions, we can manage how we respond to the operating environment. To that end, I think PulteGroup continues to do an excellent job navigating today's evolving market dynamics and doing so in a way that is consistent with our long-term operating strategies. We continued this approach in the third quarter as we remained disciplined in our business practices and focused on delivering an outstanding home buying experience within a period that underwent meaningful change. To the former, in the third quarter, we delivered almost 7,000 homes, maintained our focus on delivering strong gross margins and overall solid returns while increasing our backlog and returning nearly $400 million back to our shareholders.

As to the latter, consistent with all the reporting and commentary swirling around the current state of the U.S. housing industry, we experienced a notable slowdown in home buying demand as we moved through the third quarter and interest rates surged higher. The reality that buyer demand slowed through the quarter won't be news to anyone on this call. What I think is interesting, however, is exactly how buyers responded. Based on feedback from our sales associates, in the third quarter, they were routinely working through these important customer issues. Buyers are spending more time getting comfortable with the higher monthly payments, interest rates, and financing options before moving forward. The need to sell an existing home remains one of the most significant conversion barriers. Buyers have clear expectations regarding lot characteristics, home functionality, and overall fit.

In other words, they are taking advantage of market conditions to be very particular in what they're willing to pay for. Finally, timing often appears to be a symptom rather than the true obstacle. In many conversations, our sense is that not ready yet is really about financing or existing home sale readiness rather than timing itself. The most interesting point with these comments, they really haven't changed very much from earlier in the year when interest rates initially started moving higher. Prospective buyers continued to have concerns about stretched affordability, high monthly payments, and home sale contingencies. Our sales teams were able to help buyers solve these challenges such that our conversion rates in the third quarter were comparable to the first two quarters of 2026.

If the buyer issues haven't changed and we're still able to convert prospects at a similar rate, why the meaningful deceleration in reported sales? What changed in the quarter, and most notably in September, is that the big move higher in interest rates, along with inflation, global tensions, and waning confidence, reached the point where more consumers simply put their search on pause. In the third quarter, our customer conversion rates were relatively stable, but traffic to our communities was down 14% from the prior year, and on a sequential basis, down 11% from the second quarter. These conditions have continued through the first few weeks of October. As you would expect, most of the missing traffic were first-time buyers as this group remains the most impacted by higher interest rates.

Not only did this pronounced slowdown among our first-time buyers impact our third quarter sign-ups, but it also directly impacted our closing volumes for the quarter as the majority of our spec sales are within our first-time buyer communities. We have done a great job controlling starts and in turn, spec inventory, but the impact of having fewer finished spec sales reduced our home closings in the third quarter. I fully appreciate that this isn't a very upbeat message for an earnings call, but it's important to acknowledge that the change in the market conditions over the past 30 to 45 days when discussing PulteGroup's results for the quarter and the year to date.

Consistent with previous quarters, in the third quarter, we focused on serving what we consider core home buying demand rather than chasing volume in a market showing little price elasticity. You can see this in PulteGroup's reported Q3 financial results, as closings came in slightly below our guide, but a strong reported gross margin of 24.8% helped the company to deliver earnings of $476 million, or $2.53 per share. Through the first nine months of 2026, PulteGroup delivered just shy of 20,000 homes and generated $11 billion of home sale revenues. Operating within this year's more competitive market conditions, we have appropriately managed price and pace to capture sales, while driving year-to-date gross margins and operating margins of 24.7% and 14.2%, respectively.

In alignment with our capital allocation priorities, our strong nine-month financial results supported investment of $4 billion into land acquisition and development, and the return of $1.2 billion to shareholders through share repurchases and dividends. I will provide more detail on how we are navigating current demand dynamics later, but first, let me turn the call over to Jim Ossowski for a detailed review of PulteGroup's third quarter financial performance.

Thank you, Ryan, and good morning. In what was a challenging quarter for U.S. housing, our financial results once again show the value of our more diversified and balanced operating platform. Let us get started. Our net new orders in the third quarter totaled 6,208 homes, which is a decrease of 6% from the third quarter of last year. Reflective of Ryan's comments about lower consumer traffic, the decrease in Q3 net new orders was driven by a 13% decrease in absorption pace, partially offset by a 7% increase in average community count of 1,077 for the quarter. In the third quarter, our cancellation rate as a percentage of starting backlog was 10%, which is down from 12% last year and down 50 basis points from Q2 of this year.

Even in today's dynamic demand environment, these relatively stable cancellation rates suggest that customers under contract remain committed to closing on their home. Our absorption pace for the third quarter was 1.9 homes per month, which compares with an absorption pace of 2.2 homes per month last year. Absorption pace was lowest in September, as interest rates surged higher throughout the month. Our lower absorption pace is a consequence of the drop in prospective buyer traffic to PulteGroup communities. By buyer group, net new orders in the third quarter among first time and move-up buyers were down 9% and 14%, respectively, from last year. Once again, we benefited from our leadership position serving active adult consumers, as Q3 sign-ups among those buyers were up 11% over last year. The slower sales among move-up buyers reflect, in part, ongoing weakness within this buyer group in our Texas and West operations.

Within our active adult business, we continue to benefit from our prior year land investments as the increase in net new orders was the result of ongoing community count growth. Over the past five years, we have grown our active adult community count by almost 20%, and we look to increase market share even further with the ongoing rollout of our new Explore by Del Webb brand. PulteGroup's third quarter home sale revenues totaled $3.9 billion, which is down 9% from last year's third quarter revenues of $4.2 billion. Lower revenues for the quarter were primarily the result of a 9% decrease in closing volumes to 6,876 homes. Q3 closing volumes were negatively impacted by rising interest rates and reduced consumer confidence, as we sold a fewer number of spec homes that we were expecting to sell and close within the period.