Toll Brothers (TOL) Q3 Earnings call transcript Aug 21, 2024

Toll Brothers, a leading luxury homebuilder, delivered a strong financial performance in the third quarter of fiscal year 2024, with record home sale revenues of $2.72 billion and earnings of $3.60 per diluted share. This performance was driven by a combination of increased efficiency in homebuilding operations and favorable market conditions, including low mortgage rates and robust demand for new homes.

Market Conditions and Strategic Initiatives

Douglas Yearley, CEO of Toll Brothers, highlighted the company's optimism regarding market conditions, noting that demand for new homes remains solid, driven by favorable demographics and an undersupply of homes for sale. The company's strategic initiatives, including expanding into more affordable price points and increasing the supply of spec homes, have contributed to a 28.8% adjusted gross margin, exceeding guidance by 110 basis points.

Spec Homes and Efficiency

A notable aspect of Toll Brothers' strategy is its focus on spec homes, which accounted for approximately 54% of orders and 49% of deliveries in the third quarter. This approach not only allows the company to meet demand more efficiently but also enables buyers to personalize their homes through Toll Brothers' design studios. The company is targeting about 50% of its business as spec, with continued strong demand from buyers looking for quicker move-ins.

Financial Health and Capital Allocation

Toll Brothers' financial health is underscored by a backlog of $7.1 billion and 6,769 homes, with a cancellation rate of 2.4%. The company's net debt-to-capital ratio stood at 19.6%, and it has ample flexibility to grow its business and return capital to stockholders. Toll Brothers' capital allocation strategy includes share repurchases and dividends, with $427 million repurchased year-to-date and $260 million expected from joint venture land sales and other income.

Looking Ahead

Looking ahead, Toll Brothers is confident in its ability to continue delivering strong performance, with plans to grow community count and maintain its focus on efficiency and customer choice. The company is well-positioned to navigate market challenges and capitalize on opportunities for growth, making Toll Brothers an attractive investment for those seeking exposure to the housing sector.

Conclusion

Toll Brothers' third-quarter performance underscores its resilience and adaptability in a dynamic market. With a strong financial position, strategic initiatives, and a focus on customer satisfaction, Toll Brothers is poised to continue delivering value for its shareholders and stakeholders. As the housing market evolves, Toll Brothers' commitment to innovation and efficiency will be key drivers of its future success.