Tri Pointe (NYSE:TPH) Homes has reported robust financial results for Q3 2023, exceeding their delivery guidance with 1,223 deliveries at an average sales price of $675,000, resulting in home sales revenue of $825 million. The company also announced its expansion into the Utah market and the exercise of its right to purchase a minority stake in its mortgage joint venture, Tri Pointe Connect. The company ended the quarter with a record low debt-to-capital ratio of 32.1% and total liquidity of $1.5 billion.
Key takeaways from the call include:
- Tri Pointe Homes opened 13 new communities during the quarter, bringing their active selling community count to an all-time high of 163.
- The company is diversifying geographically, with California and Texas accounting for 29% and 34% of their active selling community mix, respectively.
- The company reported a gross margin percentage of 22.3% for the quarter, higher than expected due to a favorable mix of additional deliveries. This aligns with InvestingPro data showing a Gross Profit Margin of 23.65% for the same period.
- The company generated 1,513 net new home orders, a 122% increase compared to the prior year.
- Tri Pointe Homes anticipates delivering between 1,600 and 1,800 homes in Q4 at an average sales price between $670,000 and $680,000.
- The company expects homebuilding gross margin percentage to be in the range of 22% to 23% and SG&A expense as a percentage of home sales revenue to be in the range of 10% to 11% for Q4.
During the earnings call, Tri Pointe Homes discussed its positioning in the market in relation to agent commissions and outside broker usage, expressing confidence in the market normalizing and their ability to maintain cost reductions achieved in the first few quarters. They also discussed their expansion plans in the Carolinas, Dallas, Utah, Florida, and Charleston, mentioning that they are pursuing both organic growth and potential M&A opportunities.
The company also provided guidance on margins, stating that they expect consistent incentives in October and a strong margin in the backlog to support their guidance for the fourth quarter. They also mentioned that their sales are primarily for deliveries in 2024. The impact of higher mortgage rates was also discussed, with the company stating that they believe the consumer will adjust and that interest rates do not drive the homebuilding market.
In terms of pricing trends and average selling prices (ASPs) for the quarter, the ASP was slightly lower than expected due to a mix factor, with additional deliveries from the Texas and Charlotte markets. In 2024, the ASP is expected to be lower than in 2023 due to a heavier weighting towards the Texas and Charlotte markets. The company aims for an ASP range of $625,000 to $630,000 for next year.
The company discussed its buyer profile, stating that the average buyer has an income of $185,000, a FICO score of 749, a debt-to-income ratio of 40%, and a loan-to-value ratio of 81.5%. The majority of buyers (79%) use conventional financing. The average interest rate for buyers who have already closed or are expected to close is 6.6%, with rates increasing to 6.7% for loans locked in the third quarter. The average build time has been reduced to a 5.5-month construction cycle, with variations depending on the product and market. Buyers are stress tested at an 8.5% interest rate, and there are no issues at that level. The call concluded with well wishes for the holiday season and anticipation of reporting strong results in February.
According to InvestingPro Tips, Tri Pointe Homes yields a high return on invested capital and has been consistently increasing earnings per share, which aligns with the company's financial performance. It's worth noting that the company operates with a high return on assets, as indicated by a Return on Assets of 8.94% in Q3 2023. The company's stock price movements have been quite volatile, with a 1 Year Price Total Return of 48.22%. For more insights and tips, consider subscribing to InvestingPro, which offers additional tips for investors.
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