Stock Story -
Homebuilder Tri Pointe Homes (NYSE:TPH) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 35.9% year on year to $1.14 billion. It made a GAAP profit of $1.25 per share, improving from its profit of $0.60 per share in the same quarter last year.
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Tri Pointe Homes (TPH) Q2 CY2024 Highlights:
- Revenue: $1.14 billion vs analyst estimates of $1.07 billion (6.8% beat)
- EPS: $1.25 vs analyst estimates of $1.09 (14.9% beat)
- Gross Margin (GAAP): 23.6%, up from 20.4% in the same quarter last year
- Market Capitalization: $4.31 billion
Established in 2009 in California, Tri Pointe Homes (NYSE:TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.
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. Over the last five years, Tri Pointe Homes grew its sales at a mediocre 6.1% compounded annual growth rate. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Tri Pointe Homes's recent history shows its demand slowed as its annualized revenue growth of 2.2% over the last two years is below its five-year trend.
This quarter, Tri Pointe Homes reported wonderful year-on-year revenue growth of 35.9%, and its $1.14 billion of revenue exceeded Wall Street's estimates by 6.8%. Looking ahead, Wall Street expects sales to grow 8.3% over the next 12 months, a deceleration from this quarter.
Operating Margin Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Tri Pointe Homes 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 14.4%. 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.
Looking at the trend in its profitability, Tri Pointe Homes's annual operating margin might have seen some fluctuations but has remained more or less the same over the last five years, highlighting the long-term consistency of its business.
This quarter, Tri Pointe Homes generated an operating profit margin of 12.6%, up 3.9 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
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.
Tri Pointe Homes's EPS grew at an astounding 27.4% compounded annual growth rate over the last five years, higher than its 6.1% annualized revenue growth. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand.
We can take a deeper look into Tri Pointe Homes's earnings quality to better understand the drivers of its performance. A five-year view shows that Tri Pointe Homes has repurchased its stock, shrinking its share count by 33.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Tri Pointe Homes, its two-year annual EPS declines of 2.5% show its recent history was to blame for its underperformance over the last five years. We hope Tri Pointe Homes can return to earnings growth in the future.
In Q2, Tri Pointe Homes reported EPS at $1.25, up from $0.60 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Tri Pointe Homes to grow its earnings. Analysts are projecting its EPS of $4.41 in the last year to climb by 7% to $4.71.
Key Takeaways from Tri Pointe Homes's Q2 ResultsWe were impressed by how significantly Tri Pointe Homes blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock remained flat at $45.40 immediately after reporting.
