Toll Brothers(US:TOL)2021-05-26 15:43Financial Data and Key Metrics Changes - The company delivered 2,271 homes, generating record second quarter homebuilding revenue of $1.84 billion, with an adjusted gross margin of 24.4%, up 150 basis points year-over-year [5][19] - Pretax income was $169.8 million, and EPS was $1.01 per share, representing increases of 66% and 71% respectively compared to the prior year [5][20] - The backlog at quarter end was valued at $8.7 billion on 10,104 units, up 58% in dollars and 57% in units year-over-year [5][6] Business Line Data and Key Metrics Changes - The affordable luxury segment saw a 103% increase in orders, while the luxury segment increased by 48% [74] - Active-adult segment orders were up 135% compared to the second quarter of last year [14] - The company reported that first-time homebuyers accounted for 30% of deliveries this quarter, up from 25% one year ago [14] Market Data and Key Metrics Changes - Demand remains strong, with non-binding reservation deposits up 19% over the comparable period last year [8] - The company is experiencing significant demand from buyers migrating from higher-cost metropolitan areas to more affordable markets [9][10] - Approximately 40% of sales in accepting markets are from out-of-state buyers, a significant increase from about 30% pre-COVID [56][62] Company Strategy and Development Direction - The company is focusing on capital efficiency and has revamped land acquisition strategies to require higher risk-adjusted returns [15][16] - The strategic expansion into new markets and products, especially in the affordable luxury niche, is expected to fuel growth [13] - The company plans to develop most City Living buildings off-balance sheet in joint ventures to improve return on equity [18] Management's Comments on Operating Environment and Future Outlook - Management believes the housing market is positioned for sustained strength due to long-term supply/demand imbalances and favorable demographics [9] - The company expects return on beginning equity to exceed 20% in fiscal year 2022, with gross margins significantly exceeding fiscal year 2021 [6][28] - Management is confident in their ability to manage cost increases and maintain margins despite rising material costs [11][21] Other Important Information - The company ended the quarter with approximately $2.5 billion in liquidity, including $715 million in cash [25] - The company plans to return capital to shareholders through share repurchases and dividends, having increased the quarterly dividend by 55% [16][26] - The company is targeting a net debt-to-capital ratio in the high 20% range by fiscal year-end [25] Q&A Session Summary Question: What are the assumptions behind the greater than 20% ROE expectation for 2022? - The company assumes modest benefits from buybacks, with the main drivers being revenue growth and gross margin [34][35] Question: What is the expected gross margin for the first half of 2022? - The company expects gross margins to exceed 25% in the first half of 2022 [36][37] Question: How does the company view the potential negative ramifications of changing pricing strategies? - The company is managing demand and growth by implementing allocation strategies and has seen acceptance of sealed bids from buyers [41][44] Question: What is the company's strategy regarding spec homes? - The company plans to delay selling spec homes until they reach at least 50% completion to maximize pricing [70][71] Question: How is the active-adult segment performing? - The active-adult segment has seen significant growth, with orders up 135% compared to the previous year [14][74]