Taylor Morrison(US:TMHC)2022-07-27 21:09Financial Data and Key Metrics Changes - The company achieved record profitability with a home closings gross margin of 26.6%, up 750 basis points from 19.1% a year ago and more than 1,100 basis points from two years ago [9][11][47] - Earnings per diluted share reached a new high of $2.45, with adjusted earnings per share at $2.27, reflecting a 139% increase year-over-year [11][43] - Return on equity improved by over 1,000 basis points year-over-year to just over 23% [12] Business Line Data and Key Metrics Changes - The company delivered 3,032 homes at an average selling price of $621,000, generating home closings revenue of $1.9 billion, which is a 15% increase year-over-year [44] - Monthly sales absorption pace moderated to 2.6 net orders per community, down from record levels experienced during the previous year [16] - The cancellation rate increased to 10.8% of gross orders, but remains below the long-term run rate [21] Market Data and Key Metrics Changes - The company noted a decline in sales activity in July, with signs of improvement in web traffic and mortgage pre-qualification volume since mid-June [25][26] - The entry-level segment showed the greatest reduction in sales pace, while the move-up and active lifestyle segments displayed greater resiliency [16][72] - The company reported that over half of its business in markets like Florida and Nevada comes from out-of-state buyers, indicating strong migration trends [134] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet and being selective in land investments, with a well-vintage land pipeline of 82,000 home sites [29][37] - The strategic allocation of incentive dollars is emphasized over price adjustments to protect profitability and long-term community value [20] - The company plans to invest approximately $2 billion in home building land acquisition and development this year, down from prior expectations, reflecting a more opportunistic stance [37][122] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of higher interest rates and geopolitical tensions on consumer confidence and home buying demand [14] - Despite current challenges, management remains optimistic about long-term demand drivers and the company's ability to navigate uncertainties [28] - The company expects to close approximately 13,500 homes for the full year, with an average price of at least $625,000 [46] Other Important Information - The company repurchased 6.8 million shares for $172 million, marking the highest level of repurchase activity since 2018 [54] - The company ended the quarter with $1.1 billion in total liquidity, including $378 million in unrestricted cash [50] Q&A Session Summary Question: Current incentives compared to historical levels - Management noted that Q2 incentives were lower than Q1 and all of last year, emphasizing the effectiveness of financing incentives over price reductions [68][70] Question: Trends among different buyer groups - The entry-level buyer segment experienced the greatest reduction in sales pace, while active adult buyers showed more resilience [72][74] Question: Percentage of orders on build-to-order versus specs - Management reported that 45% of orders were build-to-order, an increase from 37% in the previous quarter [87][89] Question: Cancellations differentiation between to-be-built versus pre-started - Cancellations were more heavily weighted towards spec sales, with 75% of cancellations written this year [92][94] Question: Land banking terms and costs - Management indicated that terms for land banking deals remain favorable, with no unusual terms affecting their strategy [100][102] Question: Municipal delays affecting cycle times - Management confirmed that while back-end delays persist, there are signs of improvement on the front-end of the build process [105][107] Question: Trends in incentives in hotter markets - Management acknowledged a reduction in incentives in markets like Texas and Florida, with expectations for this trend to continue [146]