Taylor Morrison outperformed expectations across all key metrics in the second quarter, driven by the benefits of the home builder’s scale, streamlined operations, and a balanced portfolio as well as improved housing market conditions.
“On the demand front, sales and shopper activity remained healthy throughout the quarter, maintaining the momentum that began in the early spring selling season,” Sheryl Palmer, chairman and CEO of Taylor Morrison, said during the home builder’s quarterly earnings call. “In total, our net sales orders increased 6% sequentially and 18% year over year, driven by a monthly absorption pace of 3.1 per community as compared to 2.9 in the first quarter and 2.6 a year ago.”
In the second quarter, Taylor Morrison closed 3,125 homes—a 3% year-over-year increase—at an average price of $639,000, which generated home closings revenue of $2 billion, well above analyst projections for the quarter. The company reported profits per share of $2.12, more than $0.40 per share above the consensus expectations for the second quarter.
Market performance was strongest in Taylor Morrison’s West region, led by Sacramento, California; Seattle; and Phoenix. The home builder’s Central region also “improved meaningfully” in the quarter, according to Palmer, while all markets in Taylor Morrison’s East region are experiencing healthy trends. Palmer said, moving forward, the home builder will target an annualized absorption rate in the low-3 range as compared with the company’s historical rate in the low- to mid-2s.
“This increase reflects the intentional change in our community mix and geographic footprint in recent years. At the same time, we have increased the average size of our newly underwritten communities by approximately 50% over the same period, which will also improve our sales velocity and cost leverage as we drive enhanced long-term returns on our invested capital,” Palmer said.
Net sales orders increased 18% year over year in the quarter to 3,023, driven by a 17% increase in the monthly absorption pace and a 1% increase in ending community count. Taylor Morrison’s online home reservation system contributed to 16% of second quarter gross sales.
As a percentage of gross orders, cancellations equaled 11.2% in the quarter, compared with 14% in the prior quarter and 10.8% in the second quarter of 2022. The ending backlog in the second quarter was 6,165 sold homes.
By consumer group, Taylor Morrison’s second quarter net sales orders were composed of 39% move-up buyers, 33% entry-level buyers, and 28% resort lifestyle community home buyers. Palmer said the company increased prices or reduced incentives sequentially in the majority of its communities in the quarter as it continues to balance affordability with pricing power on a community-by-community basis.
On the construction side of the business, Taylor Morrison is focused on driving faster inventory turns, tighter production schedules, and lower costs through simplification and streamlining. Palmer said the builder is continuing to realize efficiency benefits from simplified option offers and floor plans. Additionally, Taylor Morrison experienced a two-week cycle time improvement sequentially in the second quarter and anticipates realizing a further two-week improvement by the end of the calendar year.
“As we look ahead with the market environment showing signs of stabilization, we are keenly focused on the future,” Palmer said. “The tools we have put in place over the last year, and the exceptional cohesion between our home building and financial services team, will allow us to remain strongly focused on operating efficiently, investing for future growth, and serving our customers well.”
Land Market Update
Taylor Morrison accelerated the pace of its home building land acquisition and development investment sequentially to $397 million in the second quarter. Development-related spend accounted for 54% of the total investment in the quarter. The company’s home building lot supply was approximately 72,0000 owned and controlled homesites, and controlled home building lots as a share of total lot supply was 43% in the quarter.
“Our land investment approach is focused on achieving capital efficient, accretive growth in markets that are well-positioned to benefit from long-term demand drivers and meet the needs and preferences of our well-balanced consumer sets,” executive vice president and chief corporate operations officer Erik Heuser said. “While we will maintain our highly scrutinizing lens, we are beginning to see increasing opportunities to deploy our strong capital base into accretive deals. At this time, we now expect our total land spend this year to be approximately $1.8 billion, still favoring development of existing assets with anticipated further growth in 2024 as today’s deal flow converts into closings in the months ahead.”
In the company’s build-to-rent segment, Yardly, it owned or controlled approximately 7,200 lots across approximately 30 projects, of which half are under some phase of development. Heuser said the company expects further growth in 2024 and beyond “as projects underway today reach stabilized leasing levels.”
Chief Financial Officer Appointment
In the company’s earnings report, Taylor Morrison announced its board of directors has appointed Curt VanHyfte as the company’s executive vice president and chief financial officer. VanHyfte had been serving in an interim role since May.
The new CFO joined Taylor Morrison in connection with its acquisition of William Lyon Homes in 2020 and previously served as the home builder’s West area president. During his nearly 30-year career in home building, VanHyfte has held division, regional, and national roles in finance and has served as a division president in Chicago, St. Louis, Houston, and Phoenix.