Toll Brothers, Inc. (NYSE:TOL) Q3 2022 Earnings Conference Call August 24, 2022 8:30 AM ET

Company Participants

Douglas Yearley - Chief Executive Officer

Martin Connor - Chief Financial Officer

Rob Parahus - President and Chief Operating Officer

Fred Cooper - Senior Vice President, Finance and Investor Relations

Wendy Marlett - Chief Marketing Officer

Gregg Ziegler - Senior Vice President and Treasurer

Conference Call Participants

Alan Ratner - Zelman & Associates

Michael Rehaut - JPMorgan

Dan Oppenheim - Credit Suisse

Spencer Kaufman - UBS

Matthew Bouley - Barclays

Susan Maklari - Goldman Sachs

Mike Dahl - RBC Capital Markets

Operator

Good morning, and welcome to the Toll Brothers Third Quarter Earnings Conference Call. [Operator Instructions]. The company is planning to end the call at 9:30 when the market opens. During the Q&A, please limit yourself to one question and one follow up. Please note this event is being recorded.

I'd now like to turn the conference over to Douglas Yearley, CEO. Please go ahead.

Douglas Yearley

Thank you, Jason. Good morning. Welcome, and thank you for joining us. With me today are Marty Connor, Chief Financial Officer; Rob Parahus, President and Chief Operating Officer, Fred Cooper, Senior VP of Finance and Investor Relations; Wendy Marlett, Chief Marketing Officer; and Gregg Ziegler, Senior VP and Treasurer.

Before I begin, I ask you to read the statement on forward-looking information in our earnings release of last night and on our website. I caution you that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, interest rates, the availability of labor and materials, inflation, pandemic impacts and many other factors beyond our control that could significantly affect future results.

In our fiscal third quarter ended July 31, we reported earnings of $2.35 per share, up 26% compared to the third quarter of 2021 and driven by continued gross margin expansion. Our third quarter adjusted gross margin was 27.9%, an improvement of 230 basis points compared to last year and 90 basis points better than guidance. SG&A expense was 10.3% of homebuilding revenues, which was 20 basis points better than both our guidance and last year's third quarter. We delivered 2,414 homes in the quarter, at an average price of approximately $935,000, generating $2.3 billion in homebuilding revenue.

Although we achieved record third quarter revenues, net income and EPS, and our revenues were lower than anticipated due to fewer deliveries than projected. The shortfall resulted from the combined impact of unforeseen delays with municipal inspections, continued labor shortages, ongoing supply chain disruptions and a softer demand environment. We missed our deliveries guidance by 336 homes. Most of these deliveries were concentrated in a handful of communities and markets. For example, in California, we had 200 homes that were completed at quarter end, but due to delays with city inspectors and with utility companies, we simply could not get the final inspections or the electricity needed to obtain certificate of occupancy.