Margin Outlook
Q: How will 2024 gross margins be affected by cost pressures?
A: PulteGroup expects gross margins in 2024 to decline by approximately 70 basis points, settling at 28% to 28.5%. This accounts for flat pricing, modest 2% to 4% increases in house construction costs, and mid- to upper single-digit increases in land costs. Incentive loads are assumed to remain at 6.5%. "

Growth Targets & Land Pipeline
Q: Can you meet your 5-10% annual growth targets despite past land deals?
A: The company is confident in its land pipeline, controlling about 225,000 lots. While 2024 growth will be at the lower end of the 5-10% target due to previous deal walkaways, PulteGroup has land for 2025 under contract and expects to return to target growth rates beyond 2024. "

Incentives and Affordability
Q: Will you reduce incentives as sales improve, or keep them to drive volume?
A: Given ongoing affordability challenges, PulteGroup plans to maintain incentive loads around 6.5%. As interest rates fall, the cost of forward mortgage rate commitments will decrease, and they may reallocate incentives to other affordability solutions. The company aims to optimize pace and price rather than prioritize margin expansion alone. "

Land Banking Strategy
Q: What percentage of closings will come from finished lots under your 70% optioned land goal?
A: Upon reaching the 70% optioned land scenario, approximately 20% to 25% of total closings will come from finished lots. The rest will involve significant optionality, with many lots taken down as raw land and self-developed, enhancing capital efficiency. "

Impact of Potential Rate Cuts
Q: How would potential interest rate cuts affect your market outlook?
A: Forecasted rate cuts are not expected to unleash a significant increase in resale inventory. While some increase may occur, it's not anticipated to materially impact PulteGroup's 2024 projections, given enduring low supply and affordability challenges. "

Cycle Time Improvements
Q: Are you on track to reduce build cycle times to 100 days in 2024?
A: PulteGroup aims to reduce build cycle times from 130 days to 100 days by Q4 2024. While not yet at the target, they've trimmed about 30 days in 2023 and plan further improvements without stressing labor availability. This is factored into their cash flow guidance. " "

First-Time Buyer Pricing Trends
Q: How have prices changed for first-time buyers, and what's driving it?
A: Pricing for first-time buyers is down 6% year-over-year to $422,000, largely due to increased incentive loads of 220 basis points, equating to about $8,000. The company hasn't radically redesigned products; the price decline is primarily from incentives to address affordability. "

Move-Up Segment Performance
Q: How is the move-up segment performing compared to entry-level homes?
A: The move-up business performed exceptionally well, with year-over-year growth exceeding 70%. It achieved the strongest absorptions on a same-store basis, with strong margins and absorption rates, outperforming the first-time buyer segment. "

SG&A Expense Outlook
Q: Can SG&A expenses be leveraged further to lower percentages?
A: SG&A is expected to remain in the low 9% range for 2024, considering flat average sales prices and wage inflation of 3.5% to 4%. PulteGroup focuses on balancing investments in quality, customer experience, and employee culture rather than aggressively reducing SG&A for minimal gains. "

Use of Debt and Leverage
Q: Are you considering using more debt given your strong cash flow?
A: While recognizing opportunities to rethink leverage due to strong operations and consistent cash flow, PulteGroup acknowledges that its risk profile differs from manufacturers. They would consider using more debt for the right opportunities but will manage leverage thoughtfully. "