Homebuilder Taylor Morrison Home (NYSE:TMHC) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 16.7% year on year to $2.36 billion. Its non-GAAP profit of $2.64 per share was 10.8% above analysts’ consensus estimates.

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"I am proud to share the strong results of our fourth quarter, which I believe once again distinguished our team's execution and the merits of our diversified consumer and geographic strategy. With strong closings growth, higher margins and cost discipline, we produced a nearly-30% year-over-year increase in our adjusted earnings per diluted share and a 14% year-over-year increase in our book value per share to $56," said Sheryl Palmer, Taylor Morrison CEO and Chairman.

Company Overview

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 Builders

Traditionally, 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 Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Taylor Morrison Home grew its sales at an impressive 11.4% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

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. Taylor Morrison Home’s recent history shows its demand slowed significantly as its revenue was flat over the last two years.

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Taylor Morrison Home’s backlog reached $3.19 billion in the latest quarter and averaged 14.4% 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 reported year-on-year revenue growth of 16.7%, and its $2.36 billion of revenue exceeded Wall Street’s estimates by 9.5%.

Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Taylor Morrison Home has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.5%. This result 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 well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Taylor Morrison Home’s operating margin rose by 6.4 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Taylor Morrison Home generated an operating profit margin of 13%, down 2.1 percentage points year on year. Since Taylor Morrison Home’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

We track the long-term change 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 is profitable.

Taylor Morrison Home’s EPS grew at an astounding 27% compounded annual growth rate over the last five years, higher than its 11.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Taylor Morrison Home’s earnings can give us a better understanding of its performance. As we mentioned earlier, Taylor Morrison Home’s operating margin declined this quarter but expanded by 6.4 percentage points over the last five years. Its share count also shrank by 2%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Taylor Morrison Home, its two-year annual EPS declines of 3.4% mark a reversal from its (seemingly) healthy five-year trend. We hope Taylor Morrison Home can return to earnings growth in the future.

In Q4, Taylor Morrison Home reported EPS at $2.64, up from $2.05 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 Taylor Morrison Home’s full-year EPS of $8.73 to grow 1.7%.

Key Takeaways from Taylor Morrison Home’s Q4 Results

We were impressed by how significantly Taylor Morrison Home blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its backlog slightly missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 1.7% to $63.40 immediately after reporting.

Taylor Morrison Home put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.