Toll Brothers Earnings Call Insights: Geographies and Total Land Portfolio
Toll Brothers Inc (NYSE:TOL) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.
John Coyle – Barclays Capital: It’s John, actually filling in for Steve. I just wanted to get an idea around geographies. Would you describe the environment that we’re in right now as normalized with regard to the differences across geographies, because the order rate across different regions vary pretty meaningfully. So, I just wanted to get any input you had there.
Douglas C. Yearley, Jr. – CEO: Sure. The differences by region are more due to our inventory, the communities we have opened, and within those communities, how many lots maybe available or how big our backlogs maybe, and therefore how aggressive we’ve been with pricing. Then they are a reflection of the economics of that region, so be careful when you study those stats and dig a little deeper there. In terms of how our various markets are doing, New York City Urban is still on top of the list, both Northern and Southern California are right behind. However, at the moment we’re in between some communities, so there’s one example of where we have less inventory at the moment. Texas still does very well for us. Florida has rebounded nicely even in the summer, and then of course, the Washington to Boston corridor, which is half of our business and which is the corridor that we dominate continues to do very well in almost every market through that area.
John Coyle – Barclays Capital: Then as far as order growth taken a higher level look, can you maybe give us some color on how order trends progressed over the course of the quarter? It seems like, just from your commentary, maybe August had a bit of softness, but just trying to get an idea of how things trended through July?
Douglas C. Yearley, Jr. – CEO: Gregg, can you breakdown?
Gregg L. Ziegler – Treasury: Sure. So in terms of contracts we are talking about, it was relatively consistent throughout the quarter. I would say that July was still very solid to maybe a little bit lower than the first two months of the quarter. August continues, as Doug said, on a comparable basis, to do fine. Again, we don’t use August as a bellwether and we only have the three weeks’ worth of data.
Total Land Portfolio
Ivy Zelman – Zelman & Associates: Doug, you talked about incrementally buying more land and appreciating opportunistic deals that you may be capitalizing on. Can you talk a little bit about just the total land portfolio with respect to what might still be mothballed and whether or not looking forward, knowing – and Marty talked about margins, and he talked about the non-high-rise margins were up. I think you had talked about that there was some legacy parts of the portfolio that might still be a bit of a headwind. So I’m wondering if that headwind might be now a tailwind with home prices appreciating (indiscernible) they are and just appreciating what percent of the portfolio of land held is still mothballed?
Douglas C. Yearley, Jr. – CEO: We have 66 mothballed communities. Year-to-date, we’ve opened six communities out of mothball. So we started the year at 72. We believe we will be opening seven more mothballed communities in the fourth quarter, and we believe we will be opening plus or minus 30 mothballed communities in fiscal ’14. Remember, a lot of that land has been significantly impaired and we have been waiting for it to make a fair return. We’re not interested in opening those communities for the fun of it. We’d like to take money off those communities. So, that’s why we’ve been slow in bringing them back and careful in bringing them back. But it’s becoming a smaller and smaller part of our portfolio, particularly as we buy more and more land, but we’re slowly working our way through it…
Ivy Zelman – Zelman & Associates: And just in terms of the margins, would you say that there is still some headwind as it relates to that legacy portfolio? And then I do have another follow-up question, but if you could just talk through that margin contribution?
Martin P. Connor – CFO: Sure. Ivy, it’s tough to draw a universal conclusion on each of the mothball communities that are open. Some of them do better. Some of them do average and some of them do a little worse at our margin. I think it is a fair presumption that the fact that they are in mothball implies that their margin is a little bit less than our average margins. If they were better than our average margins, we’d have taken them out of mothballs already.
Ivy Zelman – Zelman & Associates: And then just switching gears, Doug, with respect – prospectively with so much concern over the spike we’ve seen in rates, with the pricing strength that you’ve had in the markets, maybe you can talk about what you’re seeing with new releases and whether the rate of inflation do you think is going to flow as people are pausing or just some discussion maybe around what you’re seeing from the consumers that are converting and what you’re hearing from your sales people might be really helpful for everyone please…
Douglas C. Yearley, Jr. – CEO: We chat with our sales teams every week at all levels of the Company. I get involved, Bob gets involved, Rick Hartman, our President, gets involved. Don Salmon is here who runs the Mortgage Company. And we are just not hearing that the moving rates has affected our business. We raised prices more this spring than we did last spring, so I think it’s fair to understand why August of ’12 was way up over August of ’11, because – and we said it last year that we were still a little bit scared and we were being careful with our price increases. And in this spring we gained a lot more confidence. We had more pricing power. We took advantage of it. Our backlogs had grown significantly, so we were much more interested and aggressive in raising price when our next homes sold, maybe a 10 to 12 month delivery, and so I think what’s happening this August, and as Greg pointed out, maybe a little bit in the end of July is a lot less about mortgage rates and more about us managing our business and our backlog and being more aggressive with pricing.
Ivy Zelman – Zelman & Associates: But you were just seeing – and then I’ll go in the queue. But you were just seeing the rate of inflation with maximizing house profit per units or you expect that maybe if there’s lower level of absorption you would back down and maybe not be as aggressive.
Douglas C. Yearley, Jr. – CEO: For sure, we study it every week and if sales are slower we’re obviously very careful about price increases. That’s community-by-community. So we don’t even do it division-by-division or submarket-by-submarket. We look at every community it stands on its own, and it’s also the time of the year. We always raise prices more in the spring, in the middle of the selling season than we do in July and August. So that’s part of what’s going on now. We’re few weeks away from all the kids being back in school, Labor Day being behind us and mid-September I think we are going to have a much better idea of where we stand. We feel good. Our sales teams feel good. And we are positioned to continue to grow with more communities opening through the fall and into next year. We’ll have to see how it plays out. But right now I think we are very comfortable on our position and we are comfortable where the market is.