Toll Brothers 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Traffic strong through August

“We are encouraged by our traffic, which was up 13% on a per community basis for the quarter compared to fiscal year 2013. This pattern has continued into August with traffic up 19% per community versus last August.”

Industry demand continues to be impacted by rising prices and limited income growth

“The national housing data has been somewhat volatile in recent months. Without real urgency pushing buyers to make a decision, general industry demand continues to be impacted by uncertainty about the economy and world events, improving but fragile consumer confidence and reduced affordability due to rising prices and limited personal income growth.”

The industry needs to be building 50% more homes per year than it is

“One data point we do have confidence in is the low level of production compared to historic norms. The population grew during the recession and has continued to increase since then. Based on trends over more than 40 years, the industry should be building 50% more homes this year than its current pace to meet the increased population demographics.”

Seeing some people take a little more risk in mortgage originations

“We have seen some green shoots and some good news on the self-employed front. We’re actually seeing people come out with products targeted to self-employed people and no verification of income loans with 30% down and good credit scores. But instead of just not looking at the borrower at all, they’re looking at cash flows. It will take 12 months’ worth of bank statements to ensure that the person really has the cash flow regardless of their tax return. So I think that’s really good news, and frankly I think it’s prudent.”

1.8% of people who come to tour a home buy historically

” if you look historically at the company, from 1994 to 2004, about 1.8% of our visitors signed a binding contract, and that rocketed last year in the third quarter to the highest ever of 3.5%. And that was because traffic was anemic as we talked about, but those that came in were highly qualified, highly motivated, and buyers. This past quarter, 2.7% of our traffic signed a binding contract. So while the comp to last year at 3.5%, the highest ever, is difficult, we are still running significantly higher than what happened from 1994 to 2004″

Probably doesn’t go back to 1.8% because people have more info now when they come to an open house

“A big part of that is the Internet. I don’t think we ever fall back to 1.8% of our traffic buys a home. I think it will stay higher because today’s traffic is more qualified, more motivated, more educated”

More people are playing with housing again

” What happens is when you get the high traffic rates, it’s an indication that the whole market is playing with housing again, not just the exclusive those who can afford it and are not trapped in the homes that they’re in.”

The election isn’t front of mind yet, but it will be

“The election hasn’t come to the front of the brain yet. But it’s getting there and I wouldn’t be surprised as we come closer to the election that we start to focus on the great number of things. There will a lot of promises made for sure. ”

Ya we’re disappointed by how this year has unfolded

“Looking back at the last year and thinking about the growth that we saw in 2013 and how deep and dark and long this last housing depression was, we thought the pent-up demand would continue to build and 2014 would be a significantly better year than 2013. And I think if you ask any CEO of any of the big public, they would tell you the same thing. So are we disappointed in flat or slightly negative order growth? The honest answer is yes.”