Tri Pointe Homes(US:TPH)2020-10-22 18:50Financial Data and Key Metrics Changes - The company generated earnings per share of $0.61 for the quarter, representing a 39% improvement over last year [11] - Homebuilding revenues increased by 11% year-over-year, with home sales gross margin at 22.1%, exceeding the high end of guidance [11][40] - SG&A as a percentage of home sales revenue improved by 180 basis points to 9.8% [11][44] - Net income for the quarter was $79 million, a 39% increase compared to the prior year [44] Business Line Data and Key Metrics Changes - Net orders for the quarter increased by 50% year-over-year, with an order pace improvement of 65% to 4.8 per community per month [12][33] - The absorption rate in California markets was particularly strong, with 6.6 homes per community per month, led by the Inland Empire at over nine homes [34] - Deliveries for the quarter totaled 1,303 homes, a 10% increase year-over-year, resulting in home sales revenue of $826 million [40] Market Data and Key Metrics Changes - Demand was broad-based, with 38% of buyers representing the millennial cohort [12] - The company anticipates a decrease in average selling price to approximately $585,000 in 2021 and $550,000 in 2022 due to growth in entry-level and first move-up segments [41] Company Strategy and Development Direction - The company plans to operate nationally as one unified brand, TRI Pointe Homes, to drive operational efficiency and improve financial results [25][30] - Focus on five ways to improve returns, including leveraging long-term California assets, maturing early-stage divisions, increasing inventory turns, share repurchase programs, and operational improvements [14][20][22] - The company is committed to a programmatic stock repurchase program, having repurchased $164 million in stock from a $200 million authorization [20][21] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the housing market, citing strong demand trends and demographic shifts favoring homeownership [13][52] - The company expects some slowing in sales pace due to seasonality but remains bullish about the housing business for the next couple of years [38][91] - Management acknowledged challenges in the supply chain but emphasized their ability to navigate these issues effectively [73][82] Other Important Information - The company ended the quarter with approximately $3 billion in real estate inventory and $1.3 billion in total outstanding debt, resulting in a debt-to-capital ratio of 37.8% [46] - The cancellation rate for the quarter was reported at 9.5% [136] Q&A Session Summary Question: Why can't the housing industry return to 2005 levels of starts? - Management cited land, labor, and regulatory challenges as primary inhibitors to growth [60][62] Question: What percentage of communities were able to raise prices during Q3? - Over 90% of communities were able to increase prices or decrease incentives [68] Question: Are there any labor shortages affecting construction cycles? - Management reported no issues with labor shortages, though cycle times have increased by 5% to 10% due to pandemic-related impacts [73] Question: What is the outlook for gross margins in Q4? - The slight decrease in gross margin guidance for Q4 is attributed to a lower mix of long-term California assets [84] Question: How is the virtual sales process impacting costs? - The virtual sales process accounted for 50% of sales in Q3, leading to potential long-term savings in model merchandising [134][135]