Stabilizing market dynamics helped Taylor Morrison outperform expectations “across all key metrics” in the home builder’s first quarter.
Chairman and CEO Sheryl Palmer said the company’s operational enhancements and balanced approach to to-be-built and spec home sales contributed to an 80-basis-point improvement to home closings gross margin during the quarter. The improvement in operating margins drove strong improvement in profits per share in the first quarter, which increased 20% to $1.74 per share. Analysts projected the builder would report profits per share of $1.33.
“Following a strong early start to the year, positive sales momentum accelerated further into March, consistent with typical seasonal patterns despite the uncertainties facing the market,” Palmer said.
The builder reported profit of $191 million in the quarter, up from $177 million in the first quarter of 2022.
“Leading indicators—including sales traffic, mortgage prequalifications, and digital home reservations, which remained our top conversion source at a rate of 40% in the first quarter—point to continued strength,” Palmer said.
In the quarter, gross sales orders improved to a pace of 3.4 per community, the highest level since the third quarter of 2021. The builder’s cancellation rate declined to a “more normalized” level of 14% of gross orders during the quarter. Palmer said the momentum in the first quarter has carried through the first three weeks of April, with a sales pace of approximately 3.1 net orders per community.
While the gross margin for home closings improved year over year to 23.9%, home closings declined 8% to 2,541 homes in the quarter, which generated revenue of $1.6 billion.
The decline in home closings revenue was partially offset by a 7% increase in average closing price to $635,000. The increase in average sales price during the quarter was driven by net pricing adjustments and an increase in the percentage of spec home sales in the quarter compared with a year ago.
Backlog at the end of the quarter was 6,267 sold homes, which was backed by average customer deposits of approximately $66,000, or 10% per home.
“While we are greatly encouraged by the recent improvement in sales and consumer sentiment, we also recognize the uncertainty surrounding interest rates and economic conditions,” Palmer said. “Given our balanced portfolio, scale, and financial strength, we believe we are well-positioned to navigate the near-term market volatility while remaining grounded in our long-term approach to disciplined capital allocation and market positioning.”
Spec Homes vs. Built-to-Order
Palmer said sales were strongest for Taylor Morrison among move-up buyers in the quarter, which accounted for nearly half of the builder’s net orders, followed by first-time buyers. While local teams have continued to leverage various pricing tools, Palmer said market conditions gave the company improved pricing power throughout the quarter.
“As demand has improved, we have begun to pull back on incentives in many of our communities and even raised prices,” Palmer said during the company’s quarterly earnings call.
Taylor Morrison is adjusting its to-be-built and spec mix on a community-by-community basis and has been averaging 60% spec and 40% to-be-built in recent quarters, according to Palmer. However, while quick move-ins remain attractive to buyers, Palmer said only about 30% of Taylor Morrison shoppers in the first quarter said they are looking for a home available within 30 to 60 days. Moving forward, Palmer said consumer demand will continue to dictate the cadence of spec starts versus to-be-built starts.
“The majority [of shoppers] indicated that a quick closing is either not an important consideration or that they prefer to fully personalize their home,” Palmer said. “While our actual mix of spec sales has been running roughly two times higher at about 60% given our intentional shift to more spec sales to better manage production, we believe these insights continue to support the balance mix of our portfolio.”
Land Update
Home building land acquisition and development spend totaled $321 million in the first quarter, a 19% decrease from the first quarter of 2022. Development-related spend accounted for 68% of the total spend, compared with 51% of total spend in the prior-year period. The home builder ended the quarter with approximately 73,000 owned and controlled home sites. Controlled home building lots as a share of total lot supply was 42% in the quarter, compared with 39% in the first quarter of 2022.
“With housing showing some signs of stabilization but the macroeconomic condition remaining highly uncertain, we continue to be prudent and patient in our investment decisions,” Erik Heuser, executive vice president and chief corporate operations officer, said. “This includes re-underwriting every phase of land development, lot takedown, and deal closing to ensure that each dollar invested continues to reflect market conditions and our stress tested return thresholds.”
CFO Transition
Taylor Morrison announced that its board of directors approved a request from Louis Steffens, executive vice president and chief financial officer, to step down from his CFO responsibilities, effective May 1. Steffens will relocate out of Arizona to attend to family needs, according to the company. Steffens will remain with the company as executive vice president of strategic and operational initiatives and assist in the CFO transition.
Curt VanHyfte, the builder’s current West area president, will serve as interim CFO as Taylor Morrison conducts a search for Steffens’ permanent successor. VanHyfte joined Taylor Morrison in connection with its acquisition of William Lyon Homes in February 2020. In his current role, VanHyfte oversees and drives growth for Western markets, including those in Arizona, California, Washington, and Oregon.
“We are incredibly grateful in Curt’s willingness and ability to lead our finance team. We are also thankful for Louis’ meaningful contributions as CFO during his time in Arizona and look forward to his continued leadership while, most importantly, wishing his family all the best,” Palmer said.
