Toll Brothers FY 1Q15 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Delivered 1091 homes, signed contracts on 1063 units

“Revenues of $853 million and home building deliveries of 1,091 units rose 33% in dollars and 18% in units compared to FY ‘14s first quarter totals. The average price of homes delivered was $782,000 compared to $694,000 in 2014’s first quarter. Net signed contracts of $873 million and 1,063 units rose 24% in dollars and 16% in units compared to FY ’14’s first quarter. The average price of net signed contracts was $821,000, compared to $766,000 in 2014’s first quarter.”

Backlog of 3651 units

“Backlog of $2.74 billion and 3,651 units rose 2% in dollars and was basically even in units compared to FY ’14’s first quarter end backlog.”

258 selling communities

‘ We ended the quarter with 258 selling communities, compared to 238 one year ago.”

Momentum building into spring selling season

“Momentum continues to build as we begin the spring selling season. In our first quarter, we achieved 24% growth in the dollar value of signed contracts. Since the start of the second quarter which began on February 1, contracts in units are up 13%. We continue to benefit from our ongoing geographic diversification strategy.”

Houston is strong

“Since much attention has focused on Houston, let me share a couple of facts. Houston has remained solid with backlog cancellation rates well below the company average and contracts per community up compared to last year. Of roughly 150 Houston homes in backlog at fiscal year-end, we have had just one cancellation.’

NYC, Socal and Norcal are top three markets

“New York is still good. It is second or third to Northern and Southern Cal in terms of the quality of our markets.”

No story to tell on weather

“how quickly everybody forgets how rough last winter was in many regions of the country. It was very cold and very snowy. Again it’s cold this year. It’s a little less snowy, unless you’re up in New England. We’ve looked at weather a bit, but I don’t think there is a story to tell there.”

Sometimes people actually come out more in bad weather

“Story to tell is that usually, if you’ve got good land, you got good offering and you’re hot, bad weather brings them out for some strange reason.”

“Well yes, excluding Boston. It’s amazing the power they find in order to get there. Even in deep snow, shovel the walk up to your front door, you can sell houses.”

“Massachusetts this past week, we have about 8 communities, took 13 deposits.”

People are confident that they can sell their existing homes

“We’re not hearing of issues our buyers have with selling their existing home. In fact, as this recovery strengthens, we’re hearing better news that they’re more confident they can sell their home and that’s why our traffic is up and they’re out in the market anticipating the ability to sell their home later in the spring.”

Custom designed homes not spec

“there is no change in the buying style or philosophy of our buyers. Their preference is always to custom design the home and make it one of a kind, with every addition, every finish, every upgrade that suits their lifestyle and it’s personal to them, that is always the desire. But like I say in certain markets on certain occasions, specs are needed and we think we have the right number in those locations.”

How we’re thinking about land

“We’re thinking about land as we’ve always thought about it which is to be very opportunistic, take advantage of our balance sheet and buy what we think is the best land at the corner of Main and Main to set up the company for many years to come and that’s how we’re going about it.”‘

We certainly feel better than we did in November/December

“we’re now three to four weeks into a spring selling season and there are more buyers in the market. We talked about California and our strategy and how we’re bringing on the Toll homes and how well that’s working. But where we sit today, we certainly feel better and have more pricing power than we had in November and December.”

Just because you’re selling a higher priced product doesn’t necessarily mean profitability goes up too

“I think we do continue to see some rising inputs but I think what we’ve really seen is our mix shift to California and a higher priced product out there which has driven the ASP or ADP for the year to be up. Profitability doesn’t necessarily go up just because you’re in a higher priced geography.”

Labor is still short but getting better

“Labor is still short but it’s getting better as we get further into this cycle. Most markets we have very few if any issues. California’s an example where we’re selling a whole bunch of homes, building backlogs and we’re still able to deliver homes in six, seven months. So it’s easing and certainly feels a lot better.’

Smaller builders are capital constrained

“They’re still constrained. The small guys have not come back into the business. They’re unable so far, at least in our markets, to find the capital to compete on the land deals that we go after. We’ve always loved our position because we tend not to compete against the large public builders who tend to look at land and locations that supports lower-priced housing. The land market is about the same as it’s been over the last of couple years. We’re very selective. We’re very diligent and we continue to buy land.”