Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Century Communities Inc (CCS, Financial) reported a 17% year-over-year increase in home deliveries, totaling 2,617 homes.
- Home sales revenues reached $1 billion, marking a 24% year-over-year increase.
- Adjusted earnings per diluted share rose by 66% year-over-year to $2.65.
- Net new contracts increased by 20% year-over-year, with significant growth in the West and Texas regions.
- The company achieved a record community count of 266, with plans to increase to 275-285 by year-end 2024.
Negative Points
- Incentives on new orders increased to approximately 700 basis points due to rising mortgage rates.
- Financial services profitability declined despite flat revenues, driven by increased costs and lower gain on sale margins.
- The average sales price of $389,000, while competitive, is among the lowest of publicly traded homebuilders, potentially impacting margins.
- The company experienced a sequential increase in net homebuilding debt to net capital ratio, rising to 28.1% from 24.9%.
- Resale inventory in some markets, such as Southwest Florida, has increased, posing potential competition.
Q & A Highlights
Q: Rob, you mentioned some incremental improvement in cycle times to pre-COVID levels. Can you clarify what you meant by that?
A: At the worst of COVID, cycle times fluctuated due to material and labor shortages. Pre-COVID, build times ranged from sub-90 days to over 120 days, depending on the product type. We saw continued tightening in our timeframes during the second quarter and expect this to continue in the third and fourth quarters, bringing us back to more normal pre-COVID levels.
Q: Can you provide a rough sense of how you expect gross margins to lay out over the next couple of quarters?
A: The largest variable impacting margins will be incentives, especially on the mortgage side, depending on interest rate movements. We saw incentives tick up about 100 basis points on orders in the second quarter, which will flow into Q3 closings. We also expect some land inflation in Q3 and Q4, but this should be offset by savings in direct construction costs. Overall, costs should remain stable, with incentives being the primary variable affecting margins.
Q: With this being an election year and potential rate actions by the Fed, how are you thinking about the back half of the year?
A: We've built our business to avoid being overly affected by such factors. We're focused on growing our business and selling through our inventory, regardless of the election year. People will continue to make decisions on where and how they live, and we intend to supply that demand.
Q: How does buying a mortgage rate down for a customer get reflected on the income statement?
A: The incentives paid by the homebuilder are reflected as a reduction in home sales revenue.
Q: Can you discuss the financial services segment's performance this quarter and what to expect in the back half of the year?
A: The financial services segment saw increased costs due to personnel investments and lower gain on sale revenue, along with some unfavorable fair value marks. We expect the margin profile in financial services to mimic Q2 rather than Q1 in the back half of the year.
Q: How is the competitive environment shaping up this summer compared to last year, especially regarding incentives?
A: The market remains competitive, but the primary focus of incentives is on interest rate buydowns rather than heavy home price discounts. This is consistent with what we see from our competitors. The competitive environment is similar to last year, with incentives mainly aimed at closing costs and interest rates.
Q: Can you provide more details on your start pace and whether there is upside potential to your closing targets?
A: We started nearly 3,700 homes in the quarter, driven by confidence in our communities and the need to have inventory ready for the back half of the year. Some of this increase is due to opening new communities, which typically have more inventory at the start. We are focused on growth and will continue to increase starts along with community count.
Q: Are you seeing any correlation between resale inventory increases and the need for higher incentives in certain markets?
A: While resale inventory is up from very low levels, it hasn't posed a significant headwind. We have a competitive advantage with the ability to offer below-market interest rates, which is difficult for the resale market to match. We haven't seen significant pressure in key markets like Texas and Florida.
Q: Can you clarify your year-end community count expectations and provide some insight into 2025?
A: We now expect our year-end 2024 community count to be in the range of 275 to 285, up from our initial guidance. It's too early to provide specific numbers for 2025, but we feel confident in our ability to continue growing community count based on our current lot inventory and market conditions.
Q: With the increase in the share buyback program, should we expect any change in your approach to share count?
A: The increase in the share buyback program is to ensure we have the availability to be opportunistic in the market. Our primary goal remains to offset dilution from restricted shares and be opportunistic when we see pressure on our share price. We don't anticipate a significant change in our approach to share count.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
