Toll Brothers 2Q16 Earnings Call Notes

Toll Brothers’ (TOL) CEO Douglas Yearley on Q2 2016 Results

Drop in California, but we believe the market remains strong

“Thank you, Marty. We believe the California market is still strong. Both Southern and Northern California were among our Top 5 Markets in contracts per community this quarter. Our drop in California contracts reflects a temporary lack of inventory, strategic price increases we have implemented to meter out sales in communities with large, and the lingering impact on our Porter Ranch community of a leak from a nearby natural gas storage facility, which appears to be heading towards a positive resolution.”

No significant change in foreign buyer appetite

“We have not seen any significant change in the appetite of foreign buyers in California or in our New York City high rise projects. The two Markets where they are most prevalent. Foreign buyers still represent about 15% to 20% of our California buyers and 10% to 15% of our New York City buyers.”

Dallas is still a strong market along with rest of the west

“Looking around rest of the country, we saw strength across much of the rest of the West, including Denver, Seattle, Reno, and Las Vegas. Dallas is still a strong market. Opening communities and keeping up with demand was the biggest challenge in our Dallas division this past quarter. ”

We don’t agree that there’s weakness at the high end

“We don’t agree that there’s weakness at the high end. I think our results and our commentary confirms and supports that. Every market runs differently as we always talk about. California I think we’ve done a very good job of explaining why numbers are down but why the market is still very strong for us. The community I mentioned Hidden Canyon which has $800,000 of price increases over the last year continues to have a waiting list, so I would not accept the thesis that the high end has a bid ask issue. We don’t have buyers coming in that are looking to negotiate. We are very comfortable with the business. There are plenty of buyers and we love the luxury end.”

Haven’t had to buy land as early this cycle

“I think what we’ve seen in this recovery is a slower steadier pace of recovery which results in a situation where you don’t have to buy as much land as soon in the cycle and you can in many respects kind of self-fund through operations future land purchases. ”

Bob Toll

Interest rates remain low

“We continue to believe that the drivers are in place to sustain the current housing market slow but steady growth. Interest rates remain low, job picture continues to improve, home equity values are rising, supply remains constrained and the industry is still not building enough homes to meet the demand that current demographics imply are needed.”

Millennial appetite for home ownership is consistent with past generations

“As millennials mature, studies indicate that their appetite for home ownership is consistent with past generations, which is of course encouraging for our industry.”

one potential exception to weakness at the high end is in NYC

“I think the one potential exception to that, Doug might be in the high end in New York City. And in New York…I took the opportunity to mention that in the New York market, we have four buildings, five buildings where the average price of units still to be sold is less than $3 million. I’m looking at averages that are a million, a million four, a million eight, a million nine, and then one building with three and a half million and we do have the building at 1110 Park where we have four units left that is the high end market but the rest of our product in New York skews to the mass market, middle market rather than the ultra high end.