Toll Brothers Earnings Call NUGGETS: New Community Openings, Home Price Increases
New Community Openings
David Goldberg – UBS: I was wondering, if you could give some color on the delays you were talking about in the new community openings. What is specifically kind of slowing down these new communities and is it just a matter of – it’s going to take couple extra months relative to your expectations or is it kind of a combination with selling out of existing communities along with little bit of administrative delays at this points?
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Douglas C. Yearley, Jr. – CEO: It’s exactly that, it’s both. We are selling out of existing communities faster than we had anticipated because the market has improved. And as is the case for our business since the beginning of time, entitlements are very unpredictable, we do our best, but snags occur, delays occur and it’s part of the business and we’ve had some modest slippage of new opening community – of new communities opening. So, it’s that plus the acceleration of the sellout of the existing.
Robert I. Toll – EC: To see how long they can delay us. We invent new legal stratagems to bring us to market, and they invent new blocks, so the game goes on, gets more complicated.
David Goldberg – UBS: My follow-up question was actually, I wanted to talk – in the opening comments, you guys talked about supply and demand and the pent-up demand is getting triggered combined with the lack of supply in the market. I guess, I want to ask something that’s theoretical question here, if you had to weigh what was more important in the market today, if it’s really supply, the limited amount of supplies maybe people who are buying in the existing home market are now having to go to the new home market, because there is no inventory out there, focused demand. How would you kind of weight those two factors and if it is kind of equal or even more demand weighted what’s doing that, given the fact that the macro backdrop is not that attractive, slow growth, not a lot of great job growth, not a real robust recovery that we have seen in the macro economy?
Douglas C. Yearley, Jr. – CEO: First half of your question, the answer is clearly demand, is driving the – our successes than the limited supply. Why is demand up? In light of the macro trends, people on the sidelines for seven years, incredible interest rates, homes are more affordable than ever. Families tired of waiting, wanting to move on. Empty nesters tired of waiting wanting to downsize. It’s just the building demand for the down market, confidence is up and people are coming back out.
David Goldberg – UBS: Then how has that changed on the last few months giving some of the headwinds that you’re seeing, again in the broader economy?
Douglas C. Yearley, Jr. – CEO: No.
Robert I. Toll – EC: August 16 census and Department of Housing and Urban Development released stats that single-family authorizations in July were at a rate of 5.13. Last year, the rate was 4.17. Look at that tremendous increase, it goes to show you that the demand is there. You yourself said slow growth. Whether it’s slow or fast, it’s growth and with some growth you get some additional demand for housing which spurs price increase. When you get price increases you get more interest from people who have been sitting on the fence. At first the interest is just to fulfill the desire to get a new better home. Second comes the desire not to miss-out and as you see prices increase, you’ll see more of that kind of demand and the demand forces greater price increases and (indiscernible) cycle begins. I think we’re at the beginning of the cycle that is no different than the five previous cycles that we’ve seen except this time I think also of the deepest and darkest recession in housing that we’ve ever witnessed. So, I think, we are quite a few years away from having to worry about the bus, but sooner or later the bus will come we just think it will be at least five or six years from now.
Home Price Increases
Ivy Zelman – Zelman & Associates: Doug, last quarter you were a little bit tepid in your expectation for home price increases and yet we are sitting in a situation where you are running through the communities at a faster pace and it is obviously nice probably to have but why not push pricing today was a little bit more aggressive stance on it and what’s your position generally on price given your more tepid outlook on last quarter’s conference call?
Douglas C. Yearley, Jr. – CEO: We are still scared, Ivy. So, the $10,000 price increase in 2005 is probably a $300,000 price increase today. We know our customers are coming back out but they are a bit scared themselves. We would love to build our backlog a little bit. We love to have the new price sheet effective Monday with an increase to show the clients over the weekend and it is working but we are being very careful. There are markets like New York City where we are more aggressive and we are doing what we did in ’05 which is really push the price, but there is other locations where we feel good, but not great and the modest price increases are showing some strengths that we are being careful, we don’t get out too far on that thin branch.
Ivy Zelman – Zelman & Associates: My second question would be and I am not sure if David asked this, I apologize if it’s a repeat question. There is a lot of concern in the market about the labor constraints and raw material inflation, and generally being able to close your backlog given that we’re seeing the industry struggle to meet this increased demand. Maybe you could just speak to that if you again did it already, I apologize?
Douglas C. Yearley, Jr. – CEO: In most markets, we are okay. There are limited locations where we’re hearing about some labor issues. On the pricing front, lumber is up the most, it’s up about $1,100 and for the year our costs are up about $2,900. That fortunately has been a little bit more than offset by the overall price increases that we’ve achieved and the reductions in incentives that we’ve been able to achieve. In most markets, we have pretty solid subcontractor bases that have been with us for long time and we’re not concerned about a labor shortage right now. We are concerned about some price increases that we’re trying to manage as best we can with long-term contracts.