Toll Brothers(TOL)2024-08-21 15:40Financial Data and Key Metrics Changes - The company delivered 2,814 homes at an average price of 2.72 billion, an increase of 2% year-over-year [4][15] - Adjusted gross margin was 28.8%, exceeding guidance by 110 basis points, while SG&A expense was 9.0% of home sale revenues, 20 basis points better than guidance [4][18] - Earnings per diluted share were 2.4 billion, up approximately 11% in both units and dollars compared to the previous year [4][16] - Spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter, with a target of about 50% of the business as spec homes [8][10] Market Data and Key Metrics Changes - Demand was uneven throughout the quarter, with strong performance in July and continued strength into August [5] - Key markets showing strength included New Jersey, Pennsylvania, Metro D.C., South Carolina, Atlanta, Boise, Las Vegas, and all of California [5][6] Company Strategy and Development Direction - The company is focusing on widening geographies and price points to include more affordable homes, which has helped meet demand and improve efficiency [8] - The strategy includes maintaining a balance of 50% spec and 50% build-to-order homes, with a long-term gross margin target of 27% to 28% [24][52] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about demand trends due to favorable demographics and a balanced supply-demand situation in the housing market [5][7] - The company expects to deliver between 10,650 and 10,750 homes for the full year, raising guidance based on strong third-quarter results [16][22] Other Important Information - The company plans to continue growing community count, targeting 410 communities by fiscal year-end, representing an 11% growth [20][21] - The net debt-to-capital ratio was 19.6%, with $893 million in cash and equivalents, providing ample flexibility for growth and capital return [21] Q&A Session Summary Question: Can you elaborate on the greater efficiency in homebuilding operations and the sustainability of the operating margin? - Management believes the operating margin is sustainable, targeting a long-term gross margin in the 27% to 28% range [24] Question: What was the actual number of specs in the quarter? - The company had around 3,400 specs, with approximately 750 at completion or beyond [26] Question: How confident is the company that improved cycle times and increased spec levels can drive delivery growth into 2025? - Management is very confident that improved cycle times and the spec strategy will continue to drive delivery growth [34] Question: What is driving the expected decline in fourth-quarter gross margin? - The decline is attributed to a mix of lower high-margin homes delivering in the fourth quarter compared to the third quarter [36] Question: Has the company seen any ability to dial back incentives or raise prices? - Management noted that while pricing was flat, they are seeing improved traffic and potential pricing power as rates decline [40][42] Question: How does the company view the balance between deliveries and orders going forward? - Management anticipates that deliveries will reach equilibrium with orders soon, but does not expect spec to outgrow the build-to-order business in terms of deliveries [76][78]