Release Date: December 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Toll Brothers Inc (TOL, Financial) delivered 3,431 homes in Q4 2024, generating $3.3 billion in home sales revenue, marking a 25% increase in units and a 10% increase in dollars compared to Q4 2023.
- The company achieved an adjusted gross margin of 27.9%, surpassing guidance by 40 basis points, and maintained a low SG&A expense of 8.3% of home sales revenues.
- Contracts increased by over 30% in both dollars and units in Q4 2024, indicating strong demand despite economic uncertainties.
- Toll Brothers Inc (TOL) reported record full-year earnings of $15.01 per diluted share, with a return on beginning equity of 23.1%, marking the third consecutive year of returns above 20%.
- The company has a strong financial position with over $3.1 billion in liquidity and a net debt to capital ratio of approximately 15% at fiscal year-end.
Negative Points
- The average price of homes delivered in Q4 2024 decreased by 11.3% to approximately $950,000, reflecting a shift in strategy towards widening geographies and price points.
- Toll Brothers Inc (TOL) offered increased incentives in Q4 2024, averaging 6.7% of the average sales price, slightly above recent averages, to counter market softness.
- The company's guidance for Q1 2025 projects a lower adjusted gross margin of 26.25%, primarily due to mix and increased incentives.
- Spec homes, which make up a significant portion of the company's strategy, tend to have lower margins and may require more incentives, impacting overall profitability.
- The company anticipates a challenging market environment with potential volatility in mortgage rates and economic conditions, which could affect future performance.
Q & A Highlights
Q: Can you discuss the factors influencing your operating margin guidance for 2025, given the lower expectations compared to previous years? Are there any external factors you're considering, such as mortgage rates or policy changes?
A: Douglas Yearley, CEO: We are optimistic about mortgage rates stabilizing or potentially decreasing. Our affluent buyer base has shown resilience even with elevated rates. We don't anticipate major disruptions from policy changes and are confident in our strategy, which includes geographic and product diversity.
Q: With projected cash flow similar to last year, why is the share repurchase guidance lower for 2025?
A: Douglas Yearley, CEO: The $500 million repurchase guide is a starting point. Last year, we exceeded our initial guidance, and we may do so again if opportunities arise. Our focus is on balancing growth, land acquisition, and shareholder returns.
Q: Can you provide more details on the demand trends you've observed post-election and how they compare to historical patterns?
A: Douglas Yearley, CEO: Demand has been strong, with first-quarter sales trending better than the typical 10% decline from the fourth quarter. We are seeing about two contracts per community per month, indicating a healthy start to the year.
Q: How are you managing your lot supply given the current demand outlook, and do you need to accelerate lot acquisitions?
A: Douglas Yearley, CEO: We are satisfied with our land acquisition strategy, focusing on capital efficiency with a mix of owned and optioned lots. We aim for 1.5 to 2 years of owned land supply, net of backlog, and are making progress toward this goal.
Q: What are your expectations for incentives and pricing as you enter the new year, and how confident are you in maintaining absorption rates?
A: Douglas Yearley, CEO: We expect incentives to settle around 5% to 6% of the selling price, consistent with historical levels. We are confident in maintaining absorption rates, supported by potential price increases and market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
