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Share Name | Share Symbol | Market | Type |
---|---|---|---|
PulteGroup Inc | NYSE:PHM | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.44 | 0.37% | 119.10 | 119.465 | 117.85 | 119.07 | 1,320,031 | 01:00:00 |
NAPLES, Fla., April 20, 2016 /PRNewswire/ --
Dear Fellow PulteGroup Shareholders:
As the largest shareholder and founder of PulteGroup Inc. (NYSE:PHM) ("PulteGroup" or the "Company"), I have grave concerns with PulteGroup's massive shareholder value destruction and inability to reverse the Company's chronic underperformance relative to peers and the broader market. CEO Richard Dugas has lost credibility with shareholders, and the Board of Directors of PulteGroup (the "Board") must replace him NOW. Even without adjusting for inflation, PulteGroup's revenue over the last 12 years has decreased from approximately $11.7 billion in 2004 to $5.98 billion in 2015 and PulteGroup lost over $530 million cumulatively in this period.
It is incumbent upon this Board, consistent with its responsibility to shareholders, to act immediately to put a world-class experienced CEO at the helm of OUR Company. Shareholders can no longer entrust the future of PulteGroup to the failed status quo. We cannot wait for another year to go by before effective, proven leader is in place. Despite my efforts, the Board has not accepted my attempt to professionally and privately resolve this significant issue in the best interests of all shareholders.
It is my strong conviction that Richard Dugas and Jim Postl must resign immediately from all their positions with the Company. Richard Dugas and Jim Postl worked together on the failed Centex deal where our shareholders lost over $1.46 billion. Messrs. Dugas and Postl have lost credibility with shareholders and cannot continue to serve in their positions as Chairman/CEO and Lead Director, respectively. They must be immediately replaced by direct shareholder representatives on the Board. To the extent Messrs. Dugas and Postl refuse to immediately resign from the Board and are not replaced by shareholder representatives, I will be voting AGAINST the entire Board at this year's upcoming annual meeting of shareholders.
My main concerns include, but are not limited to, the following:
SETTING THE RECORD STRAIGHT
To date, rather than provide viable solutions, Richard Dugas, Jim Postl and the other members of the Board have instead chosen to try to defend their poor track record by omitting key facts and making misleading statements:
LACKLUSTER TOTAL SHAREHOLDER RETURNS & VALUE DESTRUCTION
Under the leadership of CEO Richard Dugas, our Company lost its leading market position and sustained massive losses of shareholder value.
PulteGroup has sustained more than $1.3 billion in cumulative pretax losses from 2009 to 2015 while competitors generated significant pretax earnings.
Photo - http://photos.prnewswire.com/prnh/20160420/358017
Source: Annual reports
PulteGroup has sustained $530 million of losses under the leadership of CEO Richard Dugas since 2004 on a pretax basis, while competitors earned significant dollars.
Photo - http://photos.prnewswire.com/prnh/20160420/358018
Source: Annual reports
From 2011 to December 31, 2015, PulteGroup's cumulative pretax profit margins are dead last amongst large cap homebuilding peers. During this period, PulteGroup delivered a cumulative 7.2% pretax margin, which trails Lennar at 10.5%, NVR at 10.1% and D.R. Horton at 8.6%.
PulteGroup's Total Shareholder Return over the past few years and since Richard Dugas became CEO in July 2003 have woefully underperformed peer large cap homebuilders and the market. Interestingly, this is during an economic period that housing was recovering.
PulteGroup Performance vs. Peers 2014 to Present
Photo - http://photos.prnewswire.com/prnh/20160420/358019
PulteGroup Performance vs. Peers Since July 2003
Photo - http://photos.prnewswire.com/prnh/20160420/358020
PulteGroup's Subpar Valuation Evidences its Chronic Underperformance
The market currently values PulteGroup far below its large-cap homebuilding peers – Lennar Corp, D.R. Horton and NVR – as shown below.
PulteGroup Valuation vs. Peers (LEN, DHI, NVR)
Photo - http://photos.prnewswire.com/prnh/20160420/358021
POOR OPERATING RESULTS & FAILED ACQUISITION INTEGRATION
PulteGroup's land position is deep, but CEO Dugas has not been able to figure out how to best utilize this asset, as evidenced by the small amount of annual closings (17,127 closings for 2015) relative to PulteGroup's total lot inventory (95,919 lots owned plus 42,160 optioned for 2015).
Specifically, PulteGroup has a higher lot inventory (in years) than its competitors, D.R. Horton, Lennar and NVR. The ability to deliver more homes on existing owned lots is untapped potential with the right leader at PulteGroup. The last thing that PulteGroup shareholders need is to miss the opportunity to sell land inventory in the current strong market, and therefore to ultimately head into another potential recession with significant dead land inventory that cannot be moved. Along the lines of underutilizing its land positions, PulteGroup's annual rate of home closings has dramatically lagged competitors since 2011. While the peer average of annual home closing growth between 2011 and 2015 stands at ~20% CAGR, PulteGroup has only grown home closings by ~3% per year.
Despite PulteGroup's decreasing home closings over the last 2 years, PulteGroup has added nearly 700 employees, and its average revenue per employee has decreased – this is the opposite of operating leverage and value creation. Competitors of PulteGroup have increased their revenue per employee as they rebounded from the housing crisis and have become more efficient in their operations with economies of scale.
Decreasing Revenue per Employee
Photo - http://photos.prnewswire.com/prnh/20160420/358022
Despite having significant land inventory, PulteGroup makes risky and expensive land investments. Most recently, the Company purchased John Weiland for approximately $430 million to $450 million, or approximately 9% of shareholders' equity in an apparently desperate and expensive maneuver to compensate for the absence of organic growth during CEO Dugas' more than decade-long tenure. This on the heels of another expensive and failed acquisition -- the Centex acquisition -- which has proven a failure and resulted in over $1.46 billion of goodwill write-offs in just over 2 years, combined with materially decreasing community counts. Jim Postl was a director of Centex and despite the massive losses of shareholder capital from the Centex acquisition, Jim Postl has risen to Lead Director at PulteGroup.
Centex Community Counts
Photo - http://photos.prnewswire.com/prnh/20160420/358023
CONTINUED LOSS OF VALUABLE TALENT
An enterprise is only as good as the people who stand behind it. Unfortunately, Mr. Dugas' inability or unwillingness to work constructively with colleagues and effectively lead the organization appears to have led to an exodus of highly valued talent to our competitors. In addition to the recent departures of PulteGroup Division President for Dominion Homes, Keith Tomlinson and Division President, Curt VanHyfte, both who joined competitors, the Company has lost more than 20 top employees under CEO Richard Dugas.
Meanwhile, the incumbent directors, who have no relevant homebuilding experience and collectively own less than 1% of the Company, remain in place. The high-profile operations departures at PulteGroup highlight a consistent weakness in CEO Dugas' leadership capabilities, integration expertise, and fundamental management skills.
Departed Pulte Group | ||
Person |
Position of: | |
Roger Cregg |
Executive Vice President & Chief Financial Officer | |
Steve Petruska |
Chief Operating Officer | |
Deborah Wahl |
Senior Vice President & Chief Marketing Officer | |
Tony Koblinski |
National Vice President of Homebuilding Operations | |
Mike Wyatt |
Senior Vice President of Homebuilding | |
Greg Nelson |
Vice President of Tax & Corporate Real Estate | |
Tim Stewart |
Vice President of Finance Operations | |
Jim Petersen |
Director of R&D / Quality | |
Kemp Gillis |
National Director of Purchasing | |
Andy Morgillo |
National Director of Purchasing | |
Sean Degen |
National Vice President of Product Development | |
Keith Tomlinson |
Division President - Columbus & Kentucky | |
Pat Beirne |
Regional President & Area President | |
Rick Dibella |
East Region President | |
Joe Ball |
Vice President of Construction; Division President | |
Curt VanHyfte |
Division President | |
Jim Rorison |
Division President | |
Greg Wolpert |
Division President | |
Andrew Hill |
Division President | |
Louis Birnbaum |
Division President | |
Alan Laing |
Area President | |
Matt Koart |
Area President | |
Source: LinkedIn |
POOR BOARD OVERSIGHT & CORPORATE GOVERNANCE CONCERNS
None of the outside directors appear to have any meaningful experience operating a single family homebuilding business. The Board, with an average tenure of over 7 years, has seemingly become insular and unable to rectify concerns with its largest shareholder.
Outside Directors |
Experience |
Years on |
Homebuilding | |||
Brian P. Anderson |
- Finance -- Consumer Retail (Former OfficeMax CFO) |
- 11 years |
NO | |||
Bryce Blair |
- Apartment Community Management (Former AvalonBay Communities CEO) |
- 5 years |
NO | |||
Richard W. Dreiling |
- Operations -- Consumer Retail (Former Dollar General CEO) |
- 1 year |
NO | |||
Thomas J. Folliard |
- Operations -- Consumer Retail (CarMax CEO) |
- 4 years |
NO | |||
Cheryl W. Grise |
- Operations -- Public Utilities (Former Northeast Utilities EVP) |
- 6 years |
NO | |||
Andre J. Hawaux |
- Finance & Operations -- Consumer Retail (Dick's Sporting Goods COO) |
- 3 years |
NO | |||
Debra J. Kelly-Ennis |
- Marketing & Distribution -- Consumer Goods (Former Diageo Canada CEO) |
- 19 years |
NO | |||
Patrick J. O'Leary |
- Finance -- Industrial Products (Former SPX Corp. CFO) |
- 11 years |
NO | |||
James J. Postl |
- Operations -- Consumer Services (Former Pennzoil-Quaker State CEO) |
- 7 years |
NO |
The Board has only minimal ownership in PulteGroup leading to misalignment of interest with shareholders. Aggregate ownership by Board members and executive officers is significantly below that of any other peer board.
Ownership % | ||
PHM |
0.9% | |
D.R. Horton |
7.2% | |
NVR |
10.2% | |
Toll Brothers |
10.5% | |
Lennar |
2.5% | |
Peer Average |
7.6% | |
Note: Insiders include executives & directors | ||
Source: Proxy Statements |
Unsurprisingly, the Board has failed to prioritize shareholders' best interests over management. While management under the leadership of CEO Dugas has consistently destroyed shareholder value, the Board has failed to hold them accountable for their dismal record. In fact, to the contrary, the Board has awarded management generously and for all the wrong reasons.
According to a recent ISS report, PulteGroup's rating of pay-for-performance alignment for executive compensation is better than only 12% of other companies. I attribute the lack of value creation at PulteGroup in large part to the Board setting the wrong incentives for management in their compensation metrics.
FIXING PULTEGROUP NOW
In 2000, our Company was the top U.S. homebuilder, as measured by home closings. Today, PulteGroup's home closings have fallen to a distant third in the industry and are now less than half of the size of its largest competitor. In fact, PulteGroup's home closings growth has dramatically lagged peers since 2011. From that time to December 31, 2015, PulteGroup has achieved a meager 3% CAGR versus an average 20% CAGR for its peers.
It is evident that this Board has neglected its shareholders' best interests. Ineffective leadership is at the heart of PulteGroup's performance issues. PulteGroup, its employees, its customers, and its shareholders deserve immediate action. It is time for a seasoned homebuilding operator to lead the Company in order to reduce the significant loss of talent and to properly execute on a plan to drive shareholder value. Therefore, the Board must take steps to immediately find an experienced, veteran operator to replace Richard Dugas as CEO.
I stand ready to meet and seek common ground with the Board so we can together find a solution in the best interests of all shareholders. I am confident, however, that any solution must include the immediate replacement of Chairman/CEO Richard Dugas and Lead Director Jim Postl. In the absence of urgent and decisive action by the Board, I can only conclude that this Board is failing to prioritize the shareholders' best interests.
William J. Pulte
Founder and Largest Shareholder
PulteGroup
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/pulte-calls-for-lead-director-jim-postl-and-ceo-richard-dugas-to-resign-from-board-immediately-300255058.html
SOURCE William J. Pulte
Copyright 2016 PR Newswire
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