Toll Brothers Inc (TOL)

“We're going to do better than that historic 20% down.”

“So we know we think we will be able to raise prices and we will be able to continue to manage and hopefully continue to modestly decline the incentive -- reduce the incentive.”

“I think heading into 2024, particularly with rates moving down, economic outlooks beginning to improve, a sense that the FED is done or very close to being done we believe we're going to do better than that 24 to 25 overall for the company.”

“I think it'll stabilize around 45% of our business on a unit basis.”

“Putting this all together, we project approximately $12 to $12.50 of earnings per share for the full year, which would move our book value to approximately $78 per share at fiscal year-end 2024.”

“Based on land we currently own or control, we expect to grow community count by 10% by the end of fiscal 2024.”

“Our weighted average share count is expected to be approximately $106 million for the first quarter and $104 million for the full year. This assumes we repurchase a targeted $400 million of common stock this year with most of that occurring later in the year aligned with our anticipated higher cash flow.”

“We project the first quarter and full year tax rate of approximately 26%.”

“We do not expect any sales in the first quarter, but expect to sell a number of our communities by the end of the year.”

“Other income, income from unconsolidated entities, and land sales gross profit is expected to be a loss of $10 million in the first quarter, but a gain of $125 million for the full year, which includes the sale of stabilized apartment communities.”

“For the full year, we project SG&A as a percentage of home sales revenues to be approximately 9.9%.”

“We project first quarter SG&A as a percentage of home sales revenues to be approximately 12.4% versus 12.1% one year ago.”

“We expect interest in cost of sales to be approximately 1.4% in the first quarter and for the full year.”

“We expect our adjusted gross margin in the first quarter of fiscal 2024 to be 28% and for the full year to be approximately 27.9%.”

“For full fiscal year 2024, we are projecting new-home deliveries of between 9,850 and 10,350 homes with an average price between $940,000 and $960,000.”

“Consistent with normal seasonal patterns, first quarter deliveries are expected to be the low point of the year with deliveries for the full fiscal year weighted to the second half.”

“We are projecting first quarter deliveries of approximately 1,800 to 1,900 homes with an average price of between $985,000 and $1,005,000.”

“We expect to sell additional apartment communities this year.”

“We are anticipating a modestly better trend this year as we are encouraged by the recent 75 basis point decline in mortgage rates.”

“Buybacks and dividends will remain an important part of our capital allocation priorities well into the future. We have budgeted another $400 million of share repurchases in fiscal 2024.”

“We continue to target an overall mix of 60% optioned and 40% owned over the longer-term.”

“We expect community count growth to also help drive results in fiscal 2024. We plan to increase community count by 10% this year and are targeting 410 operating communities at year-end.”

“We expect that spec sold in fiscal 2024 will account for approximately 35% of deliveries in 2024.”

“Sure, Alan. I think a long term goal for us is to get down to 2 to 2.5 years of owned land with almost a year's worth of that owned land having a backlog home or a spec home on it in various stages of construction.”

“I don't think you're going to see our inventory balance grow dramatically this year compared to where it is right now, Stephen.”

“So let's just say if the average is 26 for the company, maybe affordable luxury, active adult is pushing up to 30 and move up is in call it the 22 to 24 range.”

“But that's what we anticipate for the fourth quarter.”

“We're running at a pace right now of about 24 homes sold per year per community. Last year was 25 homes sold per year per community. So it's relatively flat, and that's what we're projecting.”

“We're moving in the direction of having less owned land, but I'm not going to agree that two years is possible only because our business model, where we buy land is a bit different.”

“But the big piece is going to come from more specs. Specs this quarter were 28% of deliveries. We're targeting 40% of sales. We achieved that this quarter. And so, they'll be 40% of deliveries and they'll have a little bit less time in backlog, a lot less time in backlog than a to be built.”

“Well, Rafe, I think we expect to see better backlog conversion, because of reduced cycle times on the to be built as we are in a more stable supply chain environment, we've addressed some reductions in SKUs, and we're getting better at building the to be built.”

“So, we're not going to get ahead of ourselves right now. Marty's comment and our guidance, which is about 80 basis points lower than the 29.3% gross margin we achieved in Q3, for a 28.5% in Q4 was just a reminder that if you go back 12 to 15 months, the market had slowed dramatically.”

“As we start our fourth quarter, demand remains solid.”

“In addition, since 2020, we have generated an average of $1.1 billion of operating cash flow per year and we expect 2023 to also exceed $1 billion.”

“We expect to achieve a full year return on beginning equity of approximately 22%, and we expect to bring our book value to approximately $65 per share at year-end.”

“Putting this all together, we expect to earn between $11.50 and $12 per share in fiscal year 2023.”

“We reiterate our guidance for approximately $400 million of share repurchase year, implying approximately $150 million of buybacks in the fourth quarter.”

“Our weighted average share count is expected to be approximately $111 million for the full year and $109.5 million for the fourth quarter.”

“We expect community count to be approximately 375 by fiscal year-end with continued growth in fiscal year 2024.”

“We expect interest in cost of sales to be approximately 1.5% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.”

“We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25.4%.”

“We now expect our full year joint venture land sales and other income to be approximately $105 million, down from the $125 million previously projected.”

“As a reminder, we have planned for $400 million of share repurchases in fiscal 2023.”

“We expect buybacks and dividends to remain an important part of our capital allocation priorities well into the future.”

“Still, this land position provides us with sufficient land needed for growth in fiscal year 2024 and beyond and allows us to continue being selective and disciplined in our approach to buying land.”

“We expect cycle times to continue to improve as we move forward, which should further benefit our already strong cash flows.”

“Our spec homes represented approximately 40% of our orders in the third quarter and we expect that to continue in the near term.”

“There could be some modest drop in price, but I think you've seen most of it already.”

“We sell 10,000 a year, hope to sell 12,000, then 14,000 then 16,000, but in the scheme of the 1 million-plus houses, new homes that are sold in this country in a year.”

“And so that same theory, that same concept is also beginning to show itself with local M&A. We are seeing an increase in potential M&A deals.”

“We are seeing more land opportunities being presented by smaller builders who are now becoming sellers and not builders. It's interesting because in the last couple of weeks, we've seen more improved lots, ready-to-go land opportunities that can feed our pipeline faster because of other builders who have decided they're going to take a smaller profit, but they're going to take a profit and become sellers and not builders I think that will continue and that will accelerate.”

“Alright. I think between the growth in community count and the spec strategy, that will offset about equally the cash flow from quick returns. So I think I'd consider that a neutral, Stephen.”

“So we're still at $400 million, which is $300 million over the next two quarters.”

“Sure. Mike, we're about $100 million into share repurchases for this year. And while we said $100 million a quarter, our real target is around $400 million for the year.”

“When you ask about 2024, we're not going to give guidance right now on 2024 except to say that we should continue to have the nice tailwind of lower lumber.”

“We project a tax rate of approximately 26% for the third quarter and 25.7% for the full year.”

“We also expect continued community account growth in fiscal year 2024.”

“We expect interest in cost of sales to be approximately 1.5% in the third quarter and for the full year as we continue to benefit from our reduced leverage.”

“We expect third quarter joint venture land sales and other income to be approximately $25 million, with the balance in the fourth quarter coming primarily from several apartment projects, we are working to sell before year-end.”

“We are maintaining our full year guidance for this item at $125 million.”

“As we enter the second half of the year, we expect our G&A cost to remain relatively flat on a dollar basis as we continue to benefit from previous cost reductions, with modest increases in selling and advertising costs as the homes we sold in the slower second half of fiscal year 2022 are being delivered over the next several quarters.”

“We expect the specs will continue to comprise between 30% and 40% of our sales for the foreseeable future.”

“We are benefiting from approximately $50 million of cost reductions that we have taken over the past year which we expect to be permanent savings.”

“I think over the next couple of years, you'll see less of the secondary tertiary market expansion and more growth in our core markets.”

“It should get to about that 30% this year.”

“But right now, costs are stabilized, except for lumber, which is a nice tailwind. So stay tuned for the balance of the year.”

“And so that is the beginning of the process of seeing costs come down.”

“We also control enough land to grow community count in fiscal year 2024.”

“Lastly, as Doug mentioned, we expect to continue generating strong cash flow in 2023 and we remain cautious on new land spend. But based on the land we currently own or control, we continue to expect community count to grow by 10% by the end of fiscal year 2023.”

“Putting this all together, that works out to be between $8 and $9 per share for the full year which would move our book value above $60 at fiscal year-end 2023.”

“Our weighted average share count is expected to be approximately 120 -- I'm sorry, 112 million shares for the second quarter and 111 million shares for the full 2023 fiscal year.”

“Our occupancies remain strong and we do currently expect to sell our interest in 4 of these joint ventures by the end of the fiscal year.”

“Other income, income from 1 unconsolidated entities and land sales gross profit is expected to be approximately breakeven in the second quarter and $125 million for the full year.”

“We expect interest in cost of sales to be approximately 1.5%, and in the second quarter for the full year. This would represent a 20-basis point reduction in interest expense and cost of sales year-over-year as our leverage continues to decline.”

“We expect our adjusted gross margin in the second quarter of fiscal year 2023 and for the full year to be approximately 27%.”

“For fiscal year 2023, we are maintaining our guidance and project deliveries of between 8,000 and 9,000 homes with an average price between $965,000 and $985,000.”

“We continue to target $400 million of annual share repurchases, and we continue to pay a quarterly dividend of $0.20 per share.”

“Based on the recent strength in the market, we expect to continue to pull back on incentives in select communities.”

“As a result, we continue to expect solid results this year, and we are reaffirming our full fiscal year 2023 guidance of an adjusted gross margin of 27% and and $8 to $9 of diluted earnings per share.”

“I think the biggest factor in what would be perceived to be a declining margin environment that's offsetting that is the lumber pricing inherent in our deliveries as the year goes on. Lumber fell steadily over the last few quarters, and that will be reflective and supportive of a more flat margin for 2023.”

“Based on land we currently own or control, we expect to grow community count by 10% by the end of fiscal year 2023.”

“we do project selling our interest in four of our joint ventures by the end of the fiscal year.”

“Other income, income from unconsolidated entities and land sales gross profit is expected to be approximately $10 million in the first quarter and $125 million for the full year.”

“We expect interest and cost of sales to be approximately 1.6% in the first quarter and 1.5% for the full year. This would represent a 20 basis point reduction in interest expense in cost of sales year-over-year as our leverage continues to decline.”

“Consistent with normal seasonal patterns, first quarter deliveries are expected to be the low point of the year, with deliveries for the full fiscal year weighted to the second half.”

“We are planning to retire $400 million of our 4.375% bonds in mid-January when they become callable at par and we are targeting $100 million of share repurchases per quarter in fiscal year 2023.”

“We expect debt reduction and share repurchases to remain an important part of our capital allocation priorities for the foreseeable future.”

“In light of current market conditions, we expect to significantly reduce the spend in '23, which should free up capital for other uses.”

“We also control enough land for further community count growth in 2024.”

“Our existing land should allow us to grow community count 10% in fiscal year 2023.”

“With elevated spec demand and as cycle times and costs come down, we plan to thoughtfully replenish our supply of specs in select markets to generate additional deliveries in late '23 and throughout 2024.”

“Thankfully, quota delivery times have started to come down as we work through our backlog and as trades free up capacity in this slower market.”

“Importantly, we own or control sufficient land for a significant increase in community count in fiscal year 2023.”

“So we do expect a boost in the fourth quarter from new community openings compared to the most recent quarters, right.”

“And we opened 20 to 25 communities in each of the first 3 quarters of this year, and we project to open 35 to 40 in the fourth quarter of this year.”

“We expect community count to be approximately 350 at fiscal year-end.”

“We project SG&A as a percentage of home sale revenues to be approximately 8.7% in our fourth quarter and 10.5% for the full year.”

“We expect to further reduce interest and cost of sales in fiscal year 2023.”

“We expect interest in cost of sales to be approximately 1.8% of home sales revenues in the fourth quarter and for the full year, representing a 40 basis point decline compared to full year 2021.”

“We now project a tax rate of approximately 24.8% for the fourth quarter and 25% for the full year.”

“We expect the earnings from these gains on the park and sales will continue to be a nice complement to our core homebuilding business.”

“This pipeline should allow us to produce a consistent series of gains from apartment sales in future years.”

“As a result, we are lowering our 2022 full year joint venture, land sale and other income to $60 million.”

“However, we are pushing these sales into fiscal year 2023 when we expect to see better pricing from buyers.”

“The estimated gross margin that is embedded in these deliveries is better than our projected full year 2022 margin.”

“We expect adjusted gross margin to be 29.2% in the fourth quarter, and therefore, we continue to project 27.5% gross margin for the full year.”

“We expect share repurchases to remain an important part of our capital allocation priorities for the foreseeable future.”

“We project an adjusted gross margin of 29.2% for the fourth quarter, and we are reaffirming our full year guidance of 27.5%.”

“Has it freed up significant cash flow? Yes, it will.”

“We are not ready to guide yet to 23 community count, but I’ll tell you, it’s going up. And it’s going up based on the land we have, and it should be going up significantly.”

“As Doug mentioned, we believe our fiscal year 2023 adjusted gross margin will be even better than this year’s.”

“If the market does slow, do costs come down, we have a nice tailwind with lumber coming down that I think will benefit us in at least the second half of ‘23.”

“We do not expect it to continue at that pace.”

“Based on all these factors, we continue to project approximately $10 per share in full year earnings per share and a return on beginning equity of approximately 23%.”

“Other income, income from unconsolidated entities and land sales gross profit is expected to be breakeven for the third quarter, but is now expected to be approximately $110 million for the full year, an increase of $10 million over our prior guidance.”

“We expect community count to be approximately 325 at the end of the third quarter and 370 by fiscal year end.”

“As a result, we have reduced our full year delivery guidance by approximately 375 homes to between 11,000 and 11,500.”

“We expect the adjusted gross margin for our third quarter of fiscal year 2022 to be 27%, which implies an adjusted gross margin in excess of 29% in our fourth quarter.”

“We continue to project an adjusted gross margin of approximately 27.5% for the full year.”

“we have increased our average delivered price guidance by $15,000 per home to reflect the strong pricing in our backlog.”

“With the combination of restricting sales, the normal summer slowdown and a more cautious buyer, we expect our Q3 contracts to be lower than Q2, which is what normally occurred pre-COVID.”

“Based on the strong pricing and margin embedded in our backlog and with approximately half of our backlog scheduled for delivery in fiscal year 2023, we expect our fiscal year 2023 adjusted gross margin to be better than fiscal year 2022’s.”

“I think in the short-term, a slowing of sales would actually lead to community count growth because we have fewer sellouts than we currently project.”

“I can’t sit here and confidently tell you as I did the last few quarters, that the next home sold will be at a higher margin. I think it will be at a similar margin at the moment.”

“And so longer term, we are very comfortable being in the high 30s in both a sales cadence and a delivery cadence.”

“This lot position also provides us with all the land we need for our projected community count growth in fiscal year 2022 and beyond.”

“Due to the strong demand we continue to see in the market and the good visibility that our backlog provides, we are reaffirming all of our full year guidance.”

“If we hit our delivery guidance in Q2, 63% of our full year deliveries to hit the midpoint of guidance would occur in the second half.”

“All the guidance we're providing and the way we're running this business is assuming that there will continue to be significant stress and there will be continued to be significant pricing pressure.”

“So we expect to start in the second quarter in the neighborhood of 3,400 to 3,600 units.”

“We can and we will get the settlement pace higher as supply chain labor issues, improve over -- I think it's going to be the later part of this year.”

“We expect community count to be approximately 330 at the end of the second quarter and 375 by fiscal year-end.”

“We expect interest in cost of sales to be approximately 2.1% in the second quarter.”

“Deliveries will be back half weighted and will be consistent with seasonal patterns.”

“This will be followed by a ramp-up in our gross margin in the third quarter and a greater ramp in our fourth quarter.”

“So we don't believe that demand for our homes is being pulled forward by buyers, who are focused on beating a rise in rates.”

“There will be more affordable luxury in the mix. Right now, it's about 40% and I think it could probably get up to maybe 45%, maybe 50% over a bit of a longer term.”