Toll Brothers, Inc. Q4 FY2024 earnings call

• Strong Q4 and full-year results: Fourth quarter had 30%+ growth in contracts in both dollars and units, full year had record revenues, net income, and earnings per share.
• Strategies: Increased spec production, widened geographies, price points, and product lines; focused on operational and capital efficiency.
• Affluent buyer base: Approximately 28% of buyers paid all cash in Q4, loan to value ratio for mortgaged buyers was ~69%, cancellation rate was low at 2.5%.
• Design studios: Generated over $1 billion in sales in fiscal 2024, providing accretive, high margin revenue.

In the fourth quarter of Fiscal Year 2024, Toll Brothers delivered 3,431 homes and generated $3.3 billion in home sales revenues, with a 25% increase in units and 10% in dollars compared to Q4 2023. The adjusted gross margin was 27.9%, beating guidance by 40 basis points, and SG&A was 8.3% of home sales revenues, 30 basis points better than guidance. For the full year, the company achieved a record $10.6 billion in home sales revenue, delivered 10,813 homes at an average price of approximately $977,000, with an adjusted gross margin of 28.4%. Contracts grew by 27% in both units and dollars, and community count increased by 10% to 408 communities.

• First quarter 2025: Projected deliveries of 1,900 to 2,100 homes with an average price between $925,000 and $945,000.
• Full year 2025: Projected new home deliveries of 11,200 to 11,600 homes with an average price between $945,000 and $965,000. Adjusted gross margin expected to be 26.25% in Q1 and ~27.25% for the full year. Projected share repurchases of $500 million, community count growth 8%-10% to 440-450.

• Factors beyond control: Economy, world events, housing/financial markets, interest rates, labor/materials availability, inflation.
• Specific market risks: Softness in some markets like Austin (affordability issues), Phoenix (elevated inventories), parts of Florida (elevated inventory levels).

Q: Stephen Kim asked about operating margin and exogenous factors like mortgage rates and Trump's immigration policies.

A: Douglas Yearley stated mortgage rates have stabilized and may moderate, and the company is optimistic for 2025. He also said the company is not anticipating disruptions from immigration policies.

Q: John Lovallo asked about buyback and gross margin cadence.

A: Douglas Yearley said the $500 million buyback guide is based on current cash flow, and Marty Connor said the operating margin is expected to be in the 17%-18% range.

Q: Trevor Allinson asked about demand and lot supply.

A: Douglas Yearley said demand has been strong post-election, and the company's land business is in good shape with conservative underwriting and focus on capital efficiency.

Q: Mike Dahl asked about incentives and absorption.

A: Douglas Yearley said incentives are expected to settle in the 5%-6% range, and the company is optimistic about maintaining absorption trends.

Q: Michael Rehaut asked about gross margin breakdown and spec strategy.

A: Douglas Yearley said ~80% of Q1 gross margin difference is mix, and Marty Connor reiterated the focus on returns and spec strategy's contribution to ROE.

Q: Rafe Jadrosich asked about spec margins and regional differences.

A: Douglas Yearley discussed broad-based strength with some markets like Boston-Washington, Texas (Dallas, Houston), and softness in Austin, Phoenix, parts of Florida. Marty Connor mentioned luxury is the best performer, followed by affordable luxury.

Q: Alan Ratner asked about tariffs and joint ventures.

A: Douglas Yearley said tariffs are not expected to be a big issue, and Marty Connor discussed the composition and lumpy nature of joint venture earnings.

Q: Alex Barrón asked about price cuts.

A: Douglas Yearley said price cuts are emotional and working, helping customers feel they got a deal and moving them to buy.