Taylor Morrison Home Earnings Call Nuggets: Metering Sales Pace and Darling Side
Taylor Morrison Home Corp (NYSE:TMHC) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Metering Sales Pace
Will Randow – Citi: Just kind of curious in terms of on metering sales pace. Are you seeing that more or so in your July backlog, and call it, maybe your first week or two of August and how should we think about that, it’s clearly that should impact kind of your margins (indiscernible) expect.
Sheryl Palmer – President and CEO: I would tell you that we have been metering for quite a bit of time now. If you look at how the year started off and you look how I think we came out of the gate as well as the industry, it was really quite strong. And so I think we had to take a look at the entire business position by position and make those decisions. I would tell you that there are some communities depending on competitive environment, our land supply, market strength and number of different factors which will help drive those decisions and some will run a little bit harder. But there are (clearly communities) across the organization that were holding to a few – really a few lots a week or month to make sure that we have the ability to and then we are going to be able to start the construction on them. So, it is really a little bit of everything depending on market by market.
Will Randow – Citi: And just a follow up on Austin. In regards to we are seeing at least asking prices move up pretty rapidly year-to-date what type of benefit are you seeing from that in regards to Darling?
Sheryl Palmer – President and CEO: Just to make sure I understood you, did you say Austin because we don’t have our Darling brand in Austin.
Will Randow – Citi: No, I apologize, the Texas markets in general?
Sheryl Palmer – President and CEO: Fair enough. What I would tell you about Texas is once again I probably won’t paint it with one brush. We are seeing sub-market by sub-market. We would evaluate that. But if I look at, for example, our Houston business we’ve had some great pricing power over – really year-to-date and I would tell you the same in Dallas. In Austin, we’ve probably seen – little bit more about reduction in incentives compared to maybe increases on the base purchase price to get you to the same place but the strategy shifts a little bit in each sub-market.
Ivy Zelman – Zelman & Associates: I’d like to just drill-in, Sheryl, because you gave us so much great information and your recent trend sound really great, but I’d normally love one and a follow-up. First on the margin, I think, Dave, you gave us the information on Darling, and the first accounting impact. Can you quantify that, on what the impact was for margins in basis points? Then just more broadly Sheryl, I think with your views of the business in the longer-term opportunity for a recovery to continue, can you think that generally the market whatever pause there was that we are now seeing a reacceleration with rates hasn’t been more stable, and realizing maybe you guys didn’t see that both from what you see in the marketplace generally, because we had a lot of mix data points from the second quarter earnings with some companies saying they felt the impact, it sounds like that wasn’t the case for you. So we’re just really hoping maybe you can help us read (indiscernible) that and certainly your July commentary was excellent and helpful. But just generally, already we’re accelerating from what had been the pause, if there was in the business?
Sheryl Palmer – President and CEO: I appreciate that. Dave, why don’t you start with…
Dave Cone – Vice President and CFO: On the Darling side, so Ivy to quantify that, it was about 95 basis point drag on the overall margin and then we also had a fairly sizable drag from Canada too as that margins starts to moderate a bit. Overall, the rate increase, so we add a 120 basis that was primarily driven by rate in the West in the legacy Taylor Morrison communities.
Sheryl Palmer – President and CEO: Maybe just to add to that Dave, if you look at the specific impacts, Ivy at purchasing accounting. I will tell you those lots that were under construction at the time of acquisition January 1, probably got a write-up of eight times of what the future lots did and so the impact on that is very significant going forward and what’s really happened is we’re burning, so it’s a good news, bad news, we’re burning through that inventory quicker. So, it’s coming through faster, but it’s definitely creating a drag in the second quarter. Moving to I think your more global question, Ivy, and I’ll try to make sure that I cover it. It’s been an interesting time, and certainly recent – I think commentary has been a little mix on what’s going on. From our perspective what I would tell you is we haven’t seen a very meaningful effect. When we look at historic rates as you know there is still – we are at a very, very good place and very affordable. I believe rates don’t really impact demand, but rather affordability. But if we go back a few week and we look at the reaction that we saw back in early June, it was pretty significant, 80 basis points to 100 basis points of movement is pretty significant and people had a lot of questions. I would tell you that we’ve already seen a stabilization, as new families are entering into the market. I think they appreciate by all standards that our rates are very, very low today. I think as we look forward and we look at kind of the co-relations between interest rates and sales, it’s actually pretty fascinating, over the past 30 years as you probably know better than me, mortgage rates have posted increases probably 10 times, and each of those times, we have seen home prices appreciate. I think we’re going to continue to see that in our business. So, when I look at our local business co-relations and I look at the industry co-relations, I actually still feel very good about the trends going forward. I do believe, as I mentioned before, we came out of the gate so very strong that I think probably some of the mix reaction that we are getting, that you are hearing in the market is because there is not one size fits all. I mean, with the increase in sales as everybody fells in the first slot – in the first quarter I think you had inventory re-strength. I think you had community close-outs. I think people want to managing releases. Certainly there was probably some pause on interest rates but I think all in all as we look forward the underlying fundamental that the recovery that we’ve all been talking about for the last year are still very, very favorable; household formations, employment, affordability, confident everything still is trending in the right direction. And prices are still undervalued compared to the long-term fundamentals and buying a home is still more than 30% cheaper than renting. So, most of that still gives me great confidence and I feel really good about the business and that’s why, as Dave mentioned, you haven’t seen this change while you are in guidance.