Tri Pointe Homes (NYSE:TPH) Exceeds Q3 Expectations

Homebuilder Tri Pointe Homes (NYSE:TPH) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 34.4% year on year to $1.13 billion. Its GAAP profit of $1.18 per share was also 10.1% above analysts’ consensus estimates.

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“Tri Pointe Homes once again delivered excellent financial results for the third quarter,” said Doug Bauer, Tri Pointe Homes Chief Executive Officer.

Company Overview

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 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 performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Thankfully, Tri Pointe Homes’s 7.8% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Tri Pointe Homes’s recent history shows its demand slowed as its annualized revenue growth of 5.4% over the last two years is below its five-year trend.

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. Tri Pointe Homes’s backlog reached $1.73 billion in the latest quarter and averaged 11.4% 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, Tri Pointe Homes reported wonderful year-on-year revenue growth of 34.4%, and its $1.13 billion of revenue exceeded Wall Street’s estimates by 7%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and shows the market thinks its products and services will face some demand challenges.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

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 14.5%. 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.

Analyzing the trend in its profitability, Tri Pointe Homes’s annual operating margin rose by 1.1 percentage points over the last five years, showing its efficiency has improved.

In Q3, Tri Pointe Homes generated an operating profit margin of 12.4%, up 1.9 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Tri Pointe Homes’s EPS grew at an astounding 29.5% compounded annual growth rate over the last five years, higher than its 7.8% annualized revenue growth. This tells us the company became more profitable as it expanded.

We can take a deeper look into Tri Pointe Homes’s earnings to better understand the drivers of its performance. As we mentioned earlier, Tri Pointe Homes’s operating margin expanded by 1.1 percentage points over the last five years. On top of that, its share count shrank by 33.1%. These 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 give insight into an emerging theme or development for the business. For Tri Pointe Homes, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, Tri Pointe Homes reported EPS at $1.18, up from $0.76 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’s full-year EPS of $4.82 to grow by 3.3%.

Key Takeaways from Tri Pointe Homes’s Q3 Results

We were impressed by how significantly Tri Pointe Homes blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. On the other hand, its backlog missed. Overall, this quarter had some key positives. The market seemed to focus on the backlog miss though, as it is a leading indicator of future revenue. The stock traded down 2% to $41.65 immediately following the results.

Is Tri Pointe Homes an attractive investment opportunity at the current price?When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.