Toll Brothers

Housing

A reddit comment claimed that Toll Brothers was requiring buyers to accept price increases on their new home contracts. “Our agent said a buddy who works for Toll Brothers told him the opposite, that they were coming back to buyers asking for 100K+ more on million dollar builds.” (Reddit, 6/6/2021)

Toll Brothers told analysts that revenues were booming while it successfully increased prices beyond the cost of inflation

Toll Brother’s CEO bragged to analysts their home sales revenues was 19% higher than Q2 2021. “DOUGLAS C. YEARLEY, CHAIRMAN & CEO, TOLL BROTHERS, INC: We are very pleased with our second quarter performance as we met or exceeded our guidance on all key metrics. We delivered a record 2,407 homes in the second quarter at an average price of approximately $908,000, resulting in record home sales revenue of $2.2 billion. This was an increase of 19% compared to last year’s second quarter revenue. Our teams did a great job delivering homes in what continues to be a very challenging production environment.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

In May 2022, Toll Brothers CEO said “we have continued to raise prices in a limited number of communities,” noting the home market was benefiting from low supply and rising rents. “DOUGLAS C. YEARLEY, CHAIRMAN & CEO, TOLL BROTHERS, INC: Despite the recent moderation, the housing market remains healthy. Even over the past month, we have continued to raise prices in a limited number of communities, and we are running successful best and final sealed bid processes in about 15% of our communities. The many fundamental drivers that had supported the housing market in recent years remain firmly in place. These include favorable demographics with 150 million millennials and baby boomers experiencing life events that are driving home demand; the supply-demand imbalance resulting from over a decade of underproduction; tight retail inventories; migration trends driven by more flexibility in the workplace; and an overall greater appreciation for homes and, in particular, new homes. In addition, the for-sale housing market is benefiting from an ongoing and significant increases in rents for single- and multifamily dwellings. We believe these trends will continue to support housing demand in the long term.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

Toll Brothers CEO said the company had increased their average delivered price by $15,000 per home. “DOUGLAS C. YEARLEY, CHAIRMAN & CEO, TOLL BROTHERS, INC: As our industry continues to be challenged by supply chain disruptions, labor shortages and municipal delays, we have revised our full year deliveries guidance. We now expect full year deliveries to be between 11,000 and 11,500 homes, a reduction of about 375 homes at the midpoint. However, we have increased our average delivered price guidance by $15,000 per home to reflect the strong pricing in our backlog. As a result, we expect full year 2022 homebuilding revenues of approximately $10.1 billion at the midpoint of our guidance or 20% growth compared to fiscal year 2021.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

Toll Brothers’ CFO said the average selling price of their homes was up nearly $200,000 from Q2 2021.“MARTIN P. CONNOR, SENIOR VP & CFO, TOLL BROTHERS, INC.: Thanks, Doug. In our second quarter, we delivered 2,407 homes and generated homebuilding revenues of $2.2 billion, up 6% in units and 19% in dollars from 1 year ago. The average selling price of our 2,874 signed contracts in fiscal year 2022 second quarter was $1,075,000, up nearly $200,000 compared to last year’s second quarter and up $53,000 over Q1. Our second quarter pretax income was $296 million compared to $170 million in the second quarter of fiscal 2021. Net income was $221 million or $1.85 per share diluted compared to $128 million and $1.01 per share diluted 1 year ago. Our second quarter adjusted gross margin was 26.1% compared to 24.4% in the second quarter of 2021 and 60 basis points better than we had projected. The improvement was due primarily to price, reflecting the strong demand environment over the last year.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

Toll Brothers CEO said the company had be increasing prices by 5% per quarter and also used a “best and final offer process where we let the clients decide how much they’re willing to pay, and they bid against each other and drive the price up even higher.”“DOUGLAS C. YEARLEY: Yes. So for the last 1.5 years, we’ve been running an approximately 5% price increase per quarter. That’s not exact to every quarter, but that’s what it averages out to. Part of that is this best and final offer process where we let the clients decide how much they’re willing to pay, and they bid against each other and drive the price up even higher. But a lot of it is our own increases to our price sheet. We do not expect it to continue at that pace. We still have some pricing power. We are still raising prices today in a limited number of locations. As I’ve mentioned several times now, we still have the best and final offer sealed bid process going at 15% of our communities. But we don’t expect at the moment, particularly as we head into the summer, and we talked about seasonality, we don’t expect to continue that cadence of 5% price increase a quarter.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

Toll Brothers CEO: “we have more than exceeded cost increases through our pricing over the last 18 months, hence the increase in margin and the increase in guidance on margin in ’23” “DOUGLAS C. YEARLEY: With respect to whether we are offsetting cost increases through our pricing, we have more than exceeded cost increases through our pricing over the last 18 months, hence the increase in margin and the increase in guidance on margin in ’23. We’ll have to see how it plays out through the summer as to how much pricing power we have. While costs are going up, we do feel like we have good control over those costs. I mentioned that we have increased our contingencies. And that’s not just for the land buying I mentioned, but we’ve increased our contingencies on our open communities and are still comfortable with our ability to drive that gross margin higher. So I think we’ll have to wait and see what develops over the — let’s call it, the next 3 months to know how that pricing power will relate to cost pressures.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

Toll Brothers reported spending over $350 million on share buybacks in dividends since the start of their fiscal year. “DOUGLAS C. YEARLEY, CHAIRMAN & CEO, TOLL BROTHERS, INC: We also remain focused on improving our return on equity. In the second quarter, we repurchased $106.5 million of our common stock and another $16 million so far in our third quarter. Since the beginning of the fiscal year, we have repurchased about $308 million or 4.6% of our year-end share count. We have also paid $44 million in dividends year-to-date, and we retired $410 million of long-term debt in our first quarter. In March, our Board approved an 18% increase in our quarterly dividend and, just last week, refreshed our share repurchase authorization to 20 million shares or nearly $900 million based on current prices. These actions reflect our confidence in the business and our commitment to delivering returns to our shareholders.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)

Toll Brothers CEO told analysts he bought his first home with assistance from his parents, a trend he expected to continue today. “DOUGLAS C. YEARLEY: Sure, John. We — as we told you in the past, and it’s pretty consistent this quarter, about 30% of our buyers are first-time homebuyers. Now they’re buying more expensive homes than what I’d call a traditional starter home. As we talked about, it’s our 3 Series BMW. And I don’t — I can’t give you that answer. I’m not sure whether our mortgage team — Marty can get that. I’m not sure we know exactly where it comes from. But I’m with you. I think mom and dad are helping out a lot. I bought my first house at 27, and my amazing father and mother guaranteed my mortgage because I didn’t have — I was just getting out of law school, so I couldn’t — the mortgage company maybe was impressed by my diploma on the wall but not by my income. So that’s absolutely happening. And I’ll have the team offline and see if we can put — give you some more specifics on that.” (Q2 2022 Toll Brothers Inc Earnings Call, 5/25/2022)