Taylor Morrison Home Corp Q2 FY2024 earnings call

• Sheryl Palmer noted that in the second quarter, closings volume and gross margin exceeded prior guidance. They now expect to deliver 12,600 to 12,800 homes this year with a home closings gross margin around 24%.
• The diversified consumer and geographic strategy has contributed to stability in gross margins despite interest rate volatility. Over the last six quarters, adjusted margins have remained in a tight range of 23.9% to 24.2%.
• Erik Heuser provided an update on the land portfolio: owned and controlled lot inventory was 80,677 home building lots at quarter end, representing 6.7 years of supply. They expect to increase controlled lot percentage to 60% to 65% in coming quarters.
• Curt VanHyfte detailed financial results: reported net income was $199 million, or $1.86 per diluted share; adjusted net income was $211 million, or $1.97 per diluted share. SG&A as a percentage of home closings revenue was 10.2% in Q2.

In the second quarter, Taylor Morrison delivered 3,200 homes at an average price of $600,000. The adjusted home closings gross margin was 23.9%. Resort lifestyle and move up buyers accounted for 64% of net sales, while entry level communities represented 36% of second quarter sales. Spec homes accounted for 58% of total gross orders in the second quarter, nearly double the 30% share in the same quarter of 2021.

• Expect to deliver 12,600 to 12,800 homes in 2024 with a home closings gross margin around 24%.
• Third quarter expected home closings gross margin around 24%, full year same.
• Long-term targets include 10% plus annual home closings growth, low-to-mid 20% home closings gross margins, and mid-to-high teens returns on equity.

• Interest rate volatility can impact consumer confidence and traffic.
• Resale inventory competition may affect pricing.
• Lot cost inflation and labor market challenges could impact margins.

Q: Michael Rehaut asks about mechanisms for 10%+ closings growth.

A: Sheryl Palmer states it will come from a combination of long-term targets on pace and community count growth, with Erik Heuser adding they feel good about land supply balance for feeding growth.

Q: Mike Dahl inquires about spec dynamic and order trends.

A: Sheryl Palmer mentions normal seasonality, with April strong, May and June affected by rate movements, but June and July showing recovery in traffic. Erik Heuser notes making up for oversold starts in prior quarters.

Q: Matthew Bouley asks about Florida and Texas inventory impact on pricing.

A: Erik Heuser and Sheryl Palmer discuss resale inventory analysis showing their communities have less competitive resale inventory within 3-mile radii, with months of resale supply around their assets lower than MSA averages.

Q: Carl Reichardt asks about cycle times and sales incentives.

A: Sheryl Palmer talks about cycle times being close to pre-COVID, with labor market and technological advances impacting potential, and sales incentives down quarter-over-quarter and year-over-year with demand affected by multiple factors including interest rates and market activity.

Q: Alan Ratner asks about ASP guidance and cash flow.

A: Curt VanHyfte explains ASP depends on spec mix sold and closed, and cash flow is impacted by increased land spend and seasonality, but they expect to generate positive cash flow from operations between $300 million to $400 million by year end.

Q: Jay McCanless asks about active adult segment and SG&A.

A: Sheryl Palmer notes active adult segment has seen seasonal patterns but remains strong, with Naples business doing well, and Curt VanHyfte states SG&A is expected to remain in the high 9% range for the full year.

Q: Ken Zenner asks about margin spread and regional differences.

A: Curt VanHyfte and Sheryl Palmer discuss margin differential between spec and to-be-built business, with regional differences due to land competition and consumer mix.

Q: Alex Barron asks about interest rates and Indiana acquisition.

A: Sheryl Palmer states interest rate reduction may impact incentives, and she will follow up on Indiana acquisition unit delivery numbers in the previous 12 months.