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Homebuilder Taylor Morrison Home (NYSE:TMHC) reported results ahead of analysts' expectations in Q2 CY2024, with revenue down 3.4% year on year to $1.99 billion. It made a non-GAAP profit of $1.97 per share, down from its profit of $2.12 per share in the same quarter last year.
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Taylor Morrison Home (TMHC) Q2 CY2024 Highlights:
- Revenue: $1.99 billion vs analyst estimates of $1.9 billion (4.8% beat)
- EPS (non-GAAP): $1.97 vs analyst estimates of $1.92 (2.5% beat)
- Gross Margin (GAAP): 23.7%, down from 24.2% in the same quarter last year
- Backlog: $4.11 billion at quarter end, in line with the same quarter last year
- Market Capitalization: $6.97 billion
Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE:TMHC) builds single family homes and communities across the United States.
Home BuildersTraditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Luckily, Taylor Morrison Home's sales grew at a solid 9.5% compounded annual growth rate over the last five years. This shows it was successful in expanding, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Taylor Morrison Home's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.3% over the last two years.
Taylor Morrison Home also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Taylor Morrison Home's backlog reached $4.11 billion in the latest quarter and averaged 17.4% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn't secured enough new orders to maintain its growth rate in the future.
This quarter, Taylor Morrison Home's revenue fell 3.4% year on year to $1.99 billion but beat Wall Street's estimates by 4.8%. Looking ahead, Wall Street expects sales to grow 9.9% over the next 12 months, an acceleration from this quarter.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Taylor Morrison Home has been an optimally run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.9%. This was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, Taylor Morrison Home's annual operating margin rose by 8.8 percentage points over the last five years, showing its efficiency has significantly improved.
EPS We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Taylor Morrison Home's EPS grew at an astounding 26.3% compounded annual growth rate over the last five years, higher than its 9.5% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Taylor Morrison Home's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Taylor Morrison Home's operating margin expanded by 8.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Taylor Morrison Home, its two-year annual EPS declines of 3.9% show its recent history was to blame for its underperformance over the last five years. We hope Taylor Morrison Home can return to earnings growth in the future.
In Q2, Taylor Morrison Home reported EPS at $1.97, down from $2.12 in the same quarter last year. Despite falling year on year, this print beat analysts' estimates by 2.5%. Over the next 12 months, Wall Street expects Taylor Morrison Home to grow its earnings. Analysts are projecting its EPS of $6.84 in the last year to climb by 19% to $8.15.
Key Takeaways from Taylor Morrison Home's Q2 Results We were impressed by how significantly Taylor Morrison Home blew past analysts' revenue expectations this quarter. On the other hand, its backlog missed. Overall, this was a mixed quarter for Taylor Morrison Home. The stock remained flat at $65.93 immediately after reporting.
