Toll Brothers 1Q16 Earnings Call Notes

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Douglas C. Yearley, Jr. – Chief Executive Officer and Director

Customers continue to demonstrate a healthy appetite for luxury homes

“Looking around the country, our business remains solid as customers continue to demonstrate a healthy appetite for luxury homes.”

Drop in first quarter contracts not indicative of how we see current market

“In California, the drop in our first quarter contracts was not indicative of how we see the current market. While contracts were flat in dollars, and down 28% in units, both Northern and Southern California remained healthy.”

Dallas healthy but Houston challenging

“In Dallas, our per community activity was up, but our community count was down due to some sellouts. We continue to view this market as healthy. Houston, which is about 2% of our total agreement, and also our balance sheet, had a challenging first quarter. Contracts were down 26% in units, 22 this year versus 30 last year. The lower end is more active”

Continuing to grow community count

“While global concerns have weighed on economic outlooks, we remain committed to growing our community count. We continue to evaluate new land deals, although with a slightly sharper pencil at the moment, given the global turmoil. ”

Any softness in Northern California numbers is not indicative of weakness

“With respect to California, Northern California is very strong. The numbers don’t reflect the quality of the markets and our business. We have been aggressive in raising price, as we mentioned. Our backlog is up tremendously. We’ve also had a few communities that are nearing sellout so they have less inventory and therefore we have less to offer at the moment. That will change over time. But I would not suggest in any way that Northern California is not doing as well as Southern Cal. I think those numbers are again not reflective of what we’re seeing in the market.”

Labor market shortage and larger houses increases time to build and cost

“There continues to be labor issues out in the field. Those issues appear to be moderating as the cost increases of labor are also moderating. We were up $1,500 this quarter over last quarter in building costs. And about 75% of that was labor. The balance, 25%, was very small increases in some materials. Our houses are taking a little bit longer to build. Two weeks longer, three weeks longer. It’s a reflection of the tight labor market that the entire industry has been experiencing over the past year or two. And it’s a reflection to some extent, of what you see happening with our average price point, which means our houses are getting bigger. There is more options going into the houses, and they’re a bit more complicated to build.”

We’re encouraged by the quantity and quality of traffic early in the spring season

“I think we’re very encouraged by the increase in traffic, in numbers and even more importantly in quality, which, of course, is the comments we get back from the sales teams every week when they grade the quality. So it doesn’t appear that people are visiting more often. They’re being more deliberate. It’s early in the spring season, we’re about three weeks in. And so we’re encouraged by the traffic numbers and the quality of that traffic. But I don’t think the buyer mentality right now is shifting.”

Robert I. Toll – Executive Chairman

Stock market pricing in steep decline in the economy but we are seeing signs of strength

“Thanks, Doug. The stock market seems to be pricing in a steep decline in the economy, and along with it, our sector. We on the other hand, are seeing signs that reflects strength and positive momentum in our business based on six consecutive quarters of year-over-year contract growth in both units and dollars.”