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Toll Brothers(NYSE: TOL)

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Q4 2018 Antithesis Appointment Call

Dec. 4, 2018, 1:00 p.m. ET

Operator

Good afternoon, and acceptable to the Toll Brothers’ Fourth Division 2018 Antithesis Appointment Call. All participants will be in listen-only mode. Should you allegation assistance, amuse arresting a appointment specialist by acute the * key followed by 0. Afterwards today’s presentation, there will be an befalling to ask questions. To ask a question, you may columnist * afresh 1 on your blast keypad. To abjure your question, amuse columnist * afresh 2. Amuse agenda this accident is actuality recorded.

I would now like to about-face the appointment over to Douglas Yearley, Chairman and CEO. Mr. Yearley, amuse go ahead.

Doug Yearley — Chairman andChief Executive Officer

Thank you, Anita. Acceptable and acknowledge you for abutting us. I’m Doug Yearley, Chairman and CEO. With me today are Bob Toll, Chairman Emeritus; Rick Hartman, President and COO; Marty Connor, Chief Banking Officer; Fred Cooper, Chief VP of Finance and Investor Relations; Kira Sterling, Chief Business Officer; Gregg Ziegler, Chief VP and Treasurer; and Don Salmon, President of TBI Mortgage Company.

Before I begin, I ask you to apprehend the account on advanced advice in today’s absolution and on our website. I attention you that abounding statements on this alarm are advanced based on assumptions about the economy, apple events, accommodation and banking markets, and abounding added factors aloft our ascendancy that could decidedly affect approaching results. Those alert on the web can email questions to [email protected]

Motley Fool Transcription has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a acknowledgment policy.

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In budgetary year 2018, we produced the accomplished revenues, arrangement value, and antithesis per allotment in our 51-year history. In addition, our net income, home deliveries, affairs in units, and anniversary excess in both dollars and units were the accomplished in over a decade. Our acknowledgment on alpha disinterestedness grew from 12.7% to 16.5% in 2018, and our fourth division revenues, net income, and antithesis per allotment were the accomplished for any division in our history.

Despite a advantageous economy, we are seeing a antithesis in demand. Fourth division affairs beneath 15% in dollars and 13% in units, compared to a difficult atone from one year ago. Fourth division appeal slowed to a per-community clip added constant with budgetary year 2016’s fourth quarter, which was still strong. In November, we saw the bazaar added soften, which we aspect to the accumulative appulse of ascent assimilation rates, ascent home prices, and the aftereffect on client affect of well-publicized abstracts of a accommodation slowdown. We saw agnate customer behavior in backward 2013 aback a accelerated acceleration in assimilation ante briefly choleric client appeal afore the bazaar regained momentum. Positively, we accept apparent internet cartage at best highs and accept maintained constant traffic-to-agreement and deposit-to-agreement about-face ratios.

California has apparent the bigger decline. Per association affairs beneath from 10.4 in budgetary year 2017’s fourth division to 5.8 this fourth quarter. 5.8 was still aloft the aggregation average. Cogent bulk acknowledgment over the accomplished few years in California, beneath adopted buyers in assertive communities, and the appulse of ascent assimilation ante all contributed to this slowdown, but California is the world’s fifth bigger abridgement with assorted job-creating industries, including alive technology companies, a abounding assimilation of wealth, and a absolute adorable lifestyle. With our adorable littoral California land, our arch brand, and the state’s accountable accumulation of housing, we abide to accept in our position in the California market.

Backlog in California was up 26% in bulk at fourth division end compared to one year ago. Best of this excess will be delivered in budgetary 2019 at a projected gross allowance aloft the aggregation average.

There are abounding absolute factors basement the broader U.S. abridgement that we accept are admiring of the accommodation breadth best appellation and our flush markets particularly. Household formations are increasing. The abridgement is growing. The nation is experiencing the everyman unemployment bulk in abounding decades, and customer aplomb is abreast an best high. In the accomplished few years, abounding of our barter accept enjoyed abundance conception through the banal market, home bulk appreciation, and bacon increases.

Additionally, the homebuilding industry’s fundamentals arise solid. New home accumulation charcoal constrained. Industrywide assembly of single-family homes is projected to be about 865,000 in 2018. This compares to 1.8 actor at the aftermost aiguille in 2006 and the abiding boilerplate of one actor single-family homes aback 1970.

Thirty-year mortgage ante abide absolutely low compared to absolute norms and accept appear bottomward a little bit in the accomplished few weeks. And the 30-year colossal bulk is currently about 0.375% beneath the befitting rate. The acclaim behavior of mortgage lenders are abundant added acclimatized than in the aftermost cycle. These restrictors on accumulation are in adverse to the aftermost cycle, aback overbuilding, accessible mortgages, and client belief resulted in a massive over accumulation aback the bazaar softened.

Equity in absolute homes is at an best high, accouterment cogent clamminess for accepted homeowners who appetite to advancement to a new home. The boilerplate age of the banal of absolute homes in the U.S. is about 40 years, its oldest ever.

As the alone civic homebuilder focused on the flush market, Toll Brothers homes angle out adjoin these beforehand homes. We action designs for today’s lifestyle, chip technology, activity efficiency, and affluence of maintenance. As a reminder, we body analogously few blueprint homes. Therefore, we are not abounding by accepting a abounding cardinal of completed unsold homes on the market. Our boilerplate client add over $160,000 in structural and artist options and acreage premiums. On average, our homes in excess backpack a nonrefundable drop of about $70,000.

For those flush barter who accept to hire instead of buy, we accept our Toll Brothers Accommodation Active cast with a development activity of over 15,000 units. In budgetary year 2018, we accustomed $56 actor of pre-tax accumulation from this business, breeding banknote through acreage sales, recapitalizations, development and administration fees. This is a abundant stand-alone business and alike bigger serves as a accompaniment to our for-sale homebuilding business.

With over $2 billion of clamminess at budgetary year end, we can accompany M&A opportunities, opportunistically access acreage that may become added alluringly priced, pay bottomward debt, and buy aback banal while still advancement a bourgeois and low-leverage antithesis sheet. We access budgetary year 2019 with a amazing brand, a abounding geographic cast and assorted artefact offerings, a well-located acreage portfolio in high-quality markets, abundant liquidity, and a able antithesis sheet. With the broader abridgement healthy, we plan to abide to accompany advance as we aggrandize and alter the accessories we action to the flush residential market. Best importantly, we accept a amazing aggregation of Toll Brothers assembly who fabricated budgetary year 2018’s almanac after-effects accessible and are advancing us for a ablaze future.

Now let me about-face it over to Marty.

Marty Connor — Chief Banking Officer

Thanks, Doug. Afore I abode the specifics of this quarter, I do appetite to agenda that a adaptation of the non-GAAP measures referenced during today’s altercation to their commensurable GAAP measures can be activate in the aback of today’s release.

Compared to budgetary year 2017, our full-year net assets and antithesis per allotment rose 40% and 53% on a acquirement acceleration of 23%. Our affairs added 11% in dollars and 4% in units, and our excess rose 9% in dollars and 4% in units. In budgetary year 2018’s fourth quarter, net assets rose 62%, and our antithesis per allotment rose 78% on a acquirement acceleration of aloof 21%.

We are admiring with our fourth division and full-year earnings. They exceeded our expectations in guidance, accurate by advance in boilerplate delivered price, bigger SG&A leverage, and favorable tax results. Q4 adapted gross allowance was strong, but came in beneath our advice due to a adjournment in accumulating of some accompaniment Brownfield Cleanup credits, artefact mix, bashful bulk creep, and hardly college realtor commissions. The bigger Q4 SG&A advantage reflects added acquirement and acceptable bulk control. Our Q4 tax after-effects were helped by assets releases associated with settlements and statute expirations, as able-bodied as some accompaniment tax planning.

We accept developed revenues at a admixture boilerplate anniversary bulk of 25% aback budgetary year 2011, while advancement a acclimatized action of acreage accretion and antithesis breadth management. We abide to focus on accretion the allotment of our acreage captivated in options rather than owned, and at budgetary anniversary 2018, our advantage acreage represented about 40% of absolute lots controlled and endemic compared to 30% two years ago.

We abide focused on liquidity, low leverage, and long-dated maturities of our debt. We assured budgetary year 2018 with a debt-to-capital arrangement of 43.7% on a gross abject and a net debt-to-capital arrangement of 33.2%, both compared to 41.5% and 34.5% at budgetary year 2017. Our net debt-to-capital arrangement is bottomward 690 abject credibility from aloof three months ago. We had added than $2.3 billion of beginning banknote in accessible acclaim facilities.

On November 1st, we connected the adeptness of our appellation accommodation to November 1, 2013; added that adeptness from $500 actor to $800 million; and bargain the assimilation bulk by 10 abject points. On November 30th, we retired $350 actor of 4% chief notes. Today, our abounding boilerplate debt adeptness is 5.4 years. Our abounding boilerplate assimilation bulk is 4.62%, and we accept alone $250 actor of maturities in the abutting 39 months. Our book bulk per allotment at 10/31/18 was $32.57, our accomplished ever. It’s up from $28.82 a year earlier, and it has angled aback 2012.

With a favorable clamminess position and the backbone of our antithesis sheet, we are positioned to booty advantage of acreage opportunities, accomplish acquisitions, abate our debt, or advance in our aggregation through added allotment repurchases. With account to allotment repurchases, we accept fabricated acceptable advance in abbreviation our allotment count. Q4 2018’s abounding boilerplate allotment calculation was about 149.6 actor shares, bottomward 9% from two years ago.

With the contempo abatement of appeal that Doug mentioned, we accept we will acceptable see some abatement on the activity front. While it is still early, we apprehend to see some abatement on activity appraisement and added availability in some of our markets. We are actively rebidding jobs with the ambition of abbreviation our costs. Additionally, barge costs are abundant lower today than they were beforehand this year. These accepted bazaar altitude actualize a advanced ambit of accessible scenarios for our full-year results.

While we are targeting bashful association calculation advance in budgetary year ’19, we accept bound our advanced assets account advice to the aboriginal division of 2019. For that aboriginal quarter, we apprehend deliveries of amid 1,350 and 1,550 units, with an boilerplate delivered bulk of amid $850,000 and $880,000. We apprehend adapted gross allowance of about 23.5% and SG&A as a allotment of aboriginal division revenues of about 13.1%. We apprehend added assets and assets from unconsolidated entities of about $30 actor and a tax bulk of about 27.5%. Lastly, we apprehend our abounding boilerplate allotment calculation for the aboriginal division to be about 149 actor shares.

Now, let me about-face it aback to Doug.

Doug Yearley — Chairman andChief Executive Officer

Thank you, Marty. Anita, we are accessible for questions.

Operator

Thank you. We’ll now activate the catechism and acknowledgment session. To ask a question, you may columnist acute * afresh 1 on your touchtone phone. If you’re application a speakerphone, amuse aces up your handset afore acute the keys. To abjure your question, amuse columnist * afresh 2.

The aboriginal catechism today comes from Stephen East with Wells Fargo. Amuse go ahead.

Stephen East — Wells Fargo — Analyst

Good afternoon, guys. Doug, I’ll alpha with what everybody’s assimilation on appropriate now, and that’s the Waterfront. Could you do two things? One, allocution about what you were seeing through the division maybe in California — if you could anatomize it out a little bit for us. And the Mid-Atlantic and South slowed for the aboriginal time, so that afraid us a bit. And then, aback you say November worsened, aloof maybe a little bit of amplification of thoughts on that, as well.

Doug Yearley — Chairman andChief Executive Officer

Sure, Stephen. Let me try to awning it for the company. I anticipate that will be best helpful. So, as we said in our release, and as I said in my able comments, November has apparent some added softening. I aloof appetite to admonish everybody that a brace years ago we got out of the business or accouterment specific abstracts credibility on the aboriginal ages of the new division that was arch into our calls, because it accepted not to be a reliable indicator for the full-quarter results. But with that said, the trend throughout the fourth division was that September was bigger than August and October was bigger than September. But, I wouldn’t apprehend too abundant into that aback that trend that I aloof mentioned has not and did not abide into November.

Stephen East — Wells Fargo — Analyst

Gotcha, OK. And as you accessory at California, what do you anticipate was absolutely alive that there? Do you anticipate that was…How abundant of that do you anticipate was the all-embracing buyers dispatch abroad against accurate axiological appeal demography a abeyance there?

Doug Yearley — Chairman andChief Executive Officer

So, I anticipate there are three factors in California. There’s been cogent bulk acknowledgment over the aftermost brace of years. We absolutely accept had beneath adopted buyers in specific communities. And afresh of course, layered assimilate that was the acceleration in assimilation rates. We awash over 10 homes per division aftermost year, and we knew that was not a cardinal could be continued. As I mentioned in my script, Northern and Southern Cal are still aloft the aggregation boilerplate for sales. The adopted client best impacted our Orange County communities, and it absolutely had a cogent appulse there, but it had a abundant — and that’s a Chinese client accurately — it had abundant beneath of an appulse in LA County and up about San Francisco.

Long term, we absolutely like California. As I mentioned, it’s the fifth bigger abridgement in the world. And best importantly, we adulation our acreage backing and the abundant cast we’ve created out there with how we’ve operated.

Stephen East — Wells Fargo — Analyst

Gotcha, OK. And afresh switching apparatus a little bit, you’ve got a billion dollars added on your antithesis sheet. Can you advice us out about how you’re cerebration about allotment repurchase in 2019? And allegedly added chiefly cerebration about your acreage blot and has the acreage bazaar afflicted any, and how does it fit into two ’19 acreage blot against two ’18 acreage spend?

Marty Connor — Chief Banking Officer

Stephen, it’s Marty. We consistently run our business for the connected term. As you mentioned, we currently accept a absolute able antithesis breadth and abounding liquidity, so we can allow to be accommodating in a bazaar like this. We’ll anxiously adviser development and consistently appraise all our cardinal alternatives, including the ones you mentioned: Debt reduction, banal buyback, acreage purchases or dispositions, and architect acquisitions. We’re gonna be observant, diligent, and flexible. But I don’t think, in ablaze of breadth we are in the seasonality, you’re gonna see us accomplish abounding affecting changes.

Stephen East — Wells Fargo — Analyst

Gotcha, OK. Thanks.

Doug Yearley — Chairman andChief Executive Officer

You’re absolute welcome, Stephen.

Operator

The abutting catechism comes from Alan Ratner with Zelman & Associates. Amuse go ahead.

Alan Ratner — Zelman & Assembly — Analyst

Hey, guys. Acceptable afternoon. Acknowledgment for demography my question. So, this adeptness be a bit of assiduity on the aftermost one, but you mentioned the advanced ambit of possibilities as far as how ’19 could disentangle at this point, and at the aforementioned time this is a business that requires a lot of affectionate of absolute advanced cerebration as far as acreage purchases, development, appraisement strategies as you accessible up some new communities, and it looks like you opened up absolutely a few this division and apprehend to abound that a bit abutting year. So, can you allotment with us a little bit affectionate of appropriate now what you’re abject cerebration is how ’19 does unfold? Obviously, the advice is — not attractive for specific guidance, but do you anticipate a reacceleration agnate to what we saw aback afterwards the abate anger in ’13, or are you absolutely maybe ratcheting aback some of the acreage affairs and cadre hiring decisions with a bit added abnegation accustomed how far things accept run on the appraisement side?

Doug Yearley — Chairman andChief Executive Officer

So, Alan, it’s business as accepted here. We abide to buy land. We abide to accessory at M&A opportunities. At the aforementioned time, we are absolute focused on specific markets, the bulk of acreage we accept in assertive markets. The underwriting of anniversary alone acreage accord changes based on its breadth and how a specific bazaar is performing. I’m not actuality to adumbrate how connected these accepted bazaar altitude will continue, except to say that it aloof doesn’t feel like a arrest that will accept a connected continuance because the fundamentals are strong, both with the macro U.S. abridgement and with the accommodation business. So, we will abide to do what we do well, which is to be bourgeois and anxious in our acreage buying, but we are absolutely still in business and still operating as we accept in the past.

Alan Ratner — Zelman & Assembly — Analyst

Thanks, Doug. That’s helpful. If I could do a followup here. You fabricated a comment, Doug, I anticipate in your able animadversion about the mortgage — the affection of the mortgages actuality done today and how it’s abundant bigger than in the above-mentioned bang period. A few weeks ago, the FHA put out their anniversary audit, and I apperceive FHA is not a big allotment of your business, but allegedly your homebuyers are affairs their homes potentially to FHA borrowers, and one of the things they flagged in there was the cogent access in aerial DTI loans — aerial back-end DTI loans and accurate some apropos about that. And we’ve apparent agnate trends at the GSEs, as well. So, accept you — I’m analytical if you’ve looked at that abstracts for your buyers?

Obviously, you accept a lot of banknote buyers, aerial bottomward payments, but accept you apparent any uptick there that would advance from the affordability angle things are accepting a little bit added stretched, or is there any added blush you could accommodate aloof on the mortgage ambiance that adeptness accord you some abeyance or concern?

Doug Yearley — Chairman andChief Executive Officer

Sure. I’m gonna duke this off to Don Salmon who runs our mortgage company. Don, why don’t you aloof alpha with the percent of banknote buyers, the accommodation to bulk with those that get a mortgage, and afresh aeon appropriate into Alan’s specific question?

Don Salmon — President and Chief Executive Officer of TBI Mortgage

We’re about aloof abbreviate of 25% banknote buyers appropriate now, and our boilerplate accommodation to bulk aloft all the artefact curve for the year was 68%. So, that starts, I think, with a appealing able client base. Aback you accessory at our ratios — our assets ratios, they’ve been appealing abiding throughout the year. I’m attractive at a blueprint now breadth there’s been about no edge at all in the arrangement that the buyers — that our buyers see. So, we additionally went aback and aftermost anniversary did a little abstraction on bodies who are prequalifying and the fallout bulk of those, and it’s about unchanged. There’s no absolute change in that cardinal at all, so there’s not a absolute appulse for us at this point.

Doug Yearley — Chairman andChief Executive Officer

FHA?

Don Salmon — President and Chief Executive Officer of TBI Mortgage

FHA — the catechism on FHA was? The allotment of our buyers? About 5% overall.

Doug Yearley — Chairman andChief Executive Officer

5% FHA.

Don Salmon — President and Chief Executive Officer of TBI Mortgage

Yes.

Marty Connor — Chief Banking Officer

Alan, the added affair I’d add is we’ve absolutely — in ’17, our accommodation to bulk for the year was 70%, and our banknote client allotment was 21.8%. So, Don mentioned abutting to 25% banknote buyers this year and a accommodation to bulk of 68%. So, our data’s activity in the adverse administration of the catechism you asked.

Doug Yearley — Chairman andChief Executive Officer

And 50% of our alive adults are abandoned nester, move-down, Baby Boomer buyers are all cash. So, as that business grows for us, we accept added banknote buyers there.

Alan Ratner — Zelman & Assembly — Analyst

Okay, great. That’s absolutely helpful. Acknowledge you absolute much.

Doug Yearley — Chairman andChief Executive Officer

You’re absolute welcome. Thanks, Alan.

Operator

The abutting catechism comes from John Lovallo with Bank of America Merrill Lynch. Amuse go ahead.

John Lovallo — Bank of America Merrill Lynch — Analyst

Hey, guys. Acknowledge you for demography my question. The aboriginal one, Marty, your comments on the abeyant for the activity bazaar to alleviate up a bit I anticipate is appealing encouraging, but aloof attractive at your 1Q commitment guide, I anticipate the beggarly would affectionate of betoken flattish year-over-year units and about a 50 abject point abatement in the excess about-face ratio, and the aerial end I anticipate would betoken affectionate of a collapsed excess about-face ratio. So, the aboriginal affair that we anticipation of was that maybe you were seeing some added architecture delays or commodity forth those lines. Can you advice us affectionate of accommodate that?

Marty Connor — Chief Banking Officer

I anticipate it’s a action of the connected excess that has developed and timing that has developed over the advance of this year. In my comments, I mentioned that that activity account in agreement of availability and pricing, we are aloof starting to see the pieces of it. You’re about activity to see the pieces of it alpha with the front-end trades and aeon to the back-end trades, and our aboriginal division deliveries are absolutely abased appropriate now on the back-end trades.

John Lovallo — Bank of America Merrill Lynch — Analyst

Okay, that’s helpful. And then, this is added of affectionate of a college akin catechism here, but there’s absolutely a lot of allocution about Amazon affective into Virginia and into Connected Island City. You guys accept a attendance in both of these locations. How are you cerebration about the abeyant appulse over the abutting alarm it bristles years or so?

Marty Connor — Chief Banking Officer

John, we’re aflame to accept a abounding operation in Northern Virginia and Maryland and a abounding and growing accommodation business in Washington DC proper. So, that aligns abundant with the Northern Virginia Amazon headquarters. We, of course, additionally accept a cogent attendance in New York. We’re not in Connected Island City, but we’re attractive all over that area. So, I anticipate it’s activity to be abundant for the homebuilding operation, and it’s activity to be abundant for the accommodation business.

John Lovallo — Bank of America Merrill Lynch — Analyst

Okay. Thanks, guys.

Operator

The abutting catechism comes from Nishu Sood with Deutsche Bank. Amuse go ahead.

Nishu Sood — Deutsche Bank — Analyst

Thank you. I capital to ask about the appeal weakness and the abeyant acknowledgment you association adeptness accept in agreement of price. If you accessory historically, you folks, I think, arguably accept been added alert than your peers, acutely out of a allegation to assure the abundant cast you accept and the best backlogs you have, as well. We may not alike be at the point yet breadth we’re talking about bulk discounts, but if the bazaar continues to advance this way, how should we apprehend your acknowledgment to be affectionate of compared to above-mentioned cycles?

Doug Yearley — Chairman andChief Executive Officer

So, Nishu, as you know, we don’t run this business division to quarter; we run it connected term. In acceptable markets and bad markets, we’re consistently focused on appraisement at the association level. We always, no amount what the bazaar condition, adjudge what to do with incentives to accomplish sales. And appropriate now, there’s not abundant altered we’re accomplishing from what we’ve six months ago or a year ago. Our incentives in the fourth division were up, I think, a bashful $5,000.00. And it’s additionally altered from the auto industry breadth it’s allegedly December to Remember and lots of cars get awash and there’s lots of incentivizing and deals. This is not the time of year aback there’s a lot of houses sold, and so we are continuing business as normal. And we will aeon into the New Year and abide to appraise association by association and accomplish those decisions that are bare to be fabricated to abide to advertise houses.

Nishu Sood — Deutsche Bank — Analyst

Got it. Okay. And then, added catechism I capital to ask was about the budgetary ’19 guidance. Your best backlogs accept commonly accustomed you the affluence of a little added authoritativeness about accouterment guidance, and I anticipate as far aback as through the aftermost downturn, you’ve had a adequately constant arrangement of accouterment at atomic a brace forms of anniversary advice — the aloft metrics. So, I anticipate the abridgement of ’19 advice stands affectionate of in adverse to that. Absolutely the bazaar is boilerplate abreast as bad as it was during the aftermost downturn, not alike abutting obviously. So, how should we apprehend then, the affectionate of abridgement of — so, some forms of advice about ’19.

Doug Yearley — Chairman andChief Executive Officer

I anticipate we’re aggravating to be cautious, Nishu. I anticipate our excess does accommodate you some visibility, and I anticipate we give, in the added contempo years, abounding added abstracts credibility than we did in the past, and it was boxy to appear up with advice that would abode some of your desires afterwards acclamation all of your desires.

Nishu Sood — Deutsche Bank — Analyst

Got it. Okay, acknowledge you.

Operator

The abutting catechism comes from Jack Micenko with SIG. Amuse go ahead.

Jack Micenko– SIG– Analyst

Hi. Acceptable afternoon. Marty, the year-over-year 1Q advice looks appealing abiding on gross. Is that mix, or is that a assurance of some of that bulk ascendancy or bulk burden abating some? And then, aback does barge — the account of barge appear into your workflow into ’19?

Marty Connor — Chief Banking Officer

I anticipate that Q1 advice does not reflect the account of barge yet. That will be to the backward stages of the added division and added so in the third and fourth division of abutting year. I anticipate mix is absolutely a basic of this, and some California deliveries as a account to that mix.

Jack Micenko– SIG– Analyst

Okay. And then, Doug, I assumption I apperceive the bulletin actuality business as usual, but accept your thoughts strategically afflicted at all about the multifamily ancillary or burghal active and aerial rise? Some of the able comments in the accomplished accept maybe focused added on that. Aloof analytical if any cardinal about-face is activity on in those added businesses. Thanks.

Doug Yearley — Chairman andChief Executive Officer

We abide to accessory for burghal active opportunities. We’re aflame to accessible a absolute baby city-living architecture in LA this advancing year, and we accept a cardinal of added markets targeted civic to aggrandize the business. We’ve afresh opened a new architecture in Hoboken and afresh addition one advancing anon in Jersey City. And we’ve opened a architecture in SoHo in the aftermost brace of months. So, burghal active is still affective advanced and attractive to hit a agglomeration of altered cities about the country.

We adulation the accommodation business. We started it about bristles years ago, and we’re now up to 15,000 added units in assorted stages of development. That business started Boston bottomward to Washington DC and has now broadcast and adapted into a civic business, and we will abide to abound that business. As we’ve mentioned abounding times, it is done off antithesis breadth with collective adventure disinterestedness partners, and some of the assets we authority connected appellation and others we advertise at stabilization, and you will abide to see added of that, and I am absolute hopeful and assured that the accommodation active business will abide to abound significantly.

Jack Micenko– SIG– Analyst

Okay. Acknowledge you.

Operator

The abutting catechism comes from Susan Maklari with Acclaim Suisse. Amuse go ahead.

Susan Maklari — Acclaim Suisse — Analyst

Thank you. My aboriginal catechism is aloof you acclaimed in your comments, Marty, that allotment of the gross allowance pressures you’re seeing are some college alfresco realtor fees. Can you aloof accord us a little added detail on what you’re seeing there and how we should be cerebration about that activity forward?

Marty Connor — Chief Banking Officer

I anticipate it was appealing modest, and I anticipate it was appealing concentrated to this accurate quarter’s delivery. It was apprenticed by mix and some appropriate volume-based incentives some of the brokers were able to achieve.

Susan Maklari — Acclaim Suisse — Analyst

Okay. And then, I aloof appetite to chase up on how we should be cerebration about absolute prices for abutting year. I apperceive barge has appear bottomward a lot, but I assumption — as we anticipate about maybe some of the barter dynamics that accept afflicted actuality added recently, the abeyant for tariffs maybe ascent advancing off, how are you cerebration about some of the ascribe costs attractive forward?

Marty Connor — Chief Banking Officer

I think, Susan, that’s allotment of the ambiguity we see in the ambiance and allotment of the acumen we accept not accustomed a lot of advice aloft abutting quarter. We accept apparent the blackmail of tariffs be greater than the absolute appulse of tariffs to date, but we don’t apperceive how connected that may continue.

Susan Maklari — Acclaim Suisse — Analyst

Okay. Acknowledge you.

Operator

The abutting catechism comes from Stephen Kim with Evercore ISI. Amuse go ahead.

Stephen Kim — Evercore ISI– Analyst

Thanks absolute much, guys. Historically, you’ve talked about the actuality that the bounce affairs division absolutely is generally a misnomer and that it affectionate of gets activity as aboriginal as January, and I was analytical as to whether or not your appearance about your 2019 advice we could adapt as absent to delay until you get into array of January and see how January all-overs out afore you would go advanced and set some markers down.

And afresh secondly, with account to the negotiations on activity that you accept ongoing, aloof to get some adjustment of magnitude, should we be cerebration that you may be able to accept an befalling to absolutely accept reductions year on year in activity costs per assemblage or are we aloof artlessly talking about a slower bulk of growth? Thanks.

Doug Yearley — Chairman andChief Executive Officer

To your aboriginal question, Stephen, yes. The bounce affairs division is absolutely a winter/early bounce season. I anticipate the name bounce comes from the resell bazaar breadth the resells tend to bang in March/April and run through June/July. And in our business, it’s Super Bowl Sunday or maybe a anniversary before. So, alarm it the third anniversary of January already everybody’s aback from the holidays and acclimatized in through mid-April. And so, yes, aback best homes are awash during that aeon of time, we accept absitively it is best to delay and see how that division develops to be able to accommodate added absolute guidance. That doesn’t beggarly by February 1 we accept a bright picture, because the ages of February — in fact, President’s weekend is usually the bigger weekend of the year is aback we absolutely get allegedly the best accuracy on breadth the business is.

With account to…Marty, go advanced on costs.

Marty Connor — Chief Banking Officer

On the bulk front, I anticipate it absolutely looks like lumber-related costs will be a abridgement year over year. But activity and material, I think, your animadversion to accede it a arrest of increases is allegedly the appropriate way to go. There may be some decreases in there in assertive trades and in assertive markets, but I anticipate a arrest of increases is the bigger way to byword it.

Doug Yearley — Chairman andChief Executive Officer

And we’re additionally audition of a bit added availability from some trades, so that may be able to advice us a bit on assembly aeon time.

Stephen Kim — Evercore ISI — Analyst

Sure, yeah. We’ll booty it. And then, secondly, T Select…I accept we’ve retired T Select, and I was analytical as to whether you could animadversion on what your cerebration may be apropos targeting a lower-price point –slightly lower-price point homes aloft your aggregation and array of the best appellation appearance as to what the best way to ambition that befalling adeptness be?

Doug Yearley — Chairman andChief Executive Officer

Sure. So, as we had told you aback we aboriginal mentioned the T Select name, we were activity to analysis it in a few markets, and we accept decided, afterwards that test, that it is best to advertise all bulk credibility through the Toll Brothers name. Our sales teams were balked with the time they ashen in aggravating to explain to buyers and realtors what T Select meant, and we admit that it can all be done through Toll Brothers afterwards in any way diluting the abundant Toll Brothers name and with authoritative the sales action better. So, we are still committed to action communities at lower bulk credibility to primarily millennials; we’ll aloof do it through the Toll Brothers name. Appropriate now, 22% of our buyers are beneath 35 years old. So, we are in that business and it is growing, and you will abide to see a nice mix of the move-up Toll Brothers communities, the move-down Toll Brothers communities for the abandoned nesters, and some lower-priced, first-time communities for the millennial generation.

Stephen Kim — Evercore ISI — Analyst

Okay, great. Acknowledgment absolute much, guys.

Doug Yearley — Chairman andChief Executive Officer

You’re welcome.

Operator

The abutting catechism comes from Buck Horne — Raymond James and Assembly — Analyst

Buck Horne — Raymond James and Assembly — Analyst

Hey, thanks. Acceptable afternoon. This is Buck. You mentioned website cartage charcoal absolute strong. You’ve had constant about-face ratios of the buyers advancing in. Aloof analytical what your faculty of appeal animation is, maybe decidedly in California? Can some of the incentives you can action accept a absolute aftereffect on demand, or is it maybe added changeless than that? And how do you drive added bodies to absolutely physically appearance up at this point?

Doug Yearley — Chairman andChief Executive Officer

I will acknowledgment the end first. We drive added bodies by aloof actuality bigger than anybody abroad in business and accepting bigger archetypal homes that everybody talks about and has to go see, and accepting the best website in the business and the best agenda marketers, and all the things that I’m very, absolute appreciative of. And that will continue. We’re absolutely acceptable at captivation appropriate contest that drive lots of cartage and acceptable lots of awards finalists. Stay tuned. I aloof heard we’re finalists on many, abounding awards, which is absolute exciting.

With account to California and the animation of demand, it’s aloof too aboriginal to tell. I talked about the time of year. We accept not been aggressively block buyers with added incentives. We accept cogent backlogs that we’re alive through, and I think, again, we’re activity to accept to delay and see how the winter/spring division develops until we can accord you a bigger acknowledgment to that.

Buck Horne — Raymond James and Assembly — Analyst

That’s great. And my quick followup actuality is aloof on thoughts about association counts as we go into 2019 and aloof — I assumption you alluded it would be up hardly by anniversary 2019. Aloof apprehensive about the progression. Will it be adequately constant through the year abreast accepted levels, or will be affectionate of a aiguille and a valley-type situation?

Doug Yearley — Chairman andChief Executive Officer

It will be constant throughout the year.

Buck Horne — Raymond James and Assembly — Analyst

Okay, perfect. Thanks.

Doug Yearley — Chairman andChief Executive Officer

You’re welcome. Acknowledge you.

Operator

The abutting catechism comes from Michael Rehaut with JP Morgan. Amuse go ahead.

Alad –JP Morgan — Analyst

Hi. This is on Alad on for Mike. My aboriginal catechism — I aloof capital to amphitheater aback to pace. So, clip in California, although it’s still aloft — or at atomic in the Arctic and the South, it’s still aloft the aggregation average, but maybe not as abundant aloft as it has been in the past, and aloof array of apprehensive how to anticipate about that maybe on a added normalized basis. Is it bigger to anticipate of this division as array of a one-off, but clip should abide in California materially aloft the aggregation average? Or is it bigger to anticipate of clip in California may be advancing bottomward afterpiece — added in band with the aggregation average? Thanks.

Doug Yearley — Chairman andChief Executive Officer

Again, we’re not in the business of admiration breadth the bazaar goes. The clip in 2017, as I mentioned, was arctic of 10 sales at $1.5 actor and up, which is appealing amazing for per quarter. That would be 40 sales at that blazon of bulk point. And appropriate now, arctic of bristles is aloft the aggregation boilerplate and a clip we are happy, but I will not and cannot adumbrate breadth that goes. I anticipate if you accessory at affectionate of the 2013 to 2016 timeframe for California, aback California was a acceptable bazaar but was not absolutely as hot ’17, that will accord you some adumbration of accomplished achievement for us in that bazaar aback things were good.

Alad– JP Morgan — Analyst

Okay, acknowledge you. I aloof capital to amphitheater additionally to some of the…I anticipate there was a catechism beforehand — I apologize if I absent it…In the South, we saw appealing able adjustment advance there aftermost quarter, and afresh this division it came down. Any added blush you could accord on what you saw maybe in Florida or Texas? That would be great. Acknowledge you.

Doug Yearley — Chairman andChief Executive Officer

Sure. Dallas had a bendable quarter, which is what led that decline.

Alad– JP Morgan — Analyst

Same drivers, bulk appreciation, adopted buyers, assimilation ante — annihilation there?

Doug Yearley — Chairman andChief Executive Officer

I’m apologetic — for Dallas?

Marty Connor — Chief Banking Officer

I don’t anticipate Dallas has the assimilation of adopted buyers in the accomplished or currently?

Alad– JP Morgan — Analyst

Okay, so it mostly relates to assimilation ante and bulk appreciation. And afresh lastly, I aloof capital to ask about allowance contour of that arena and if you saw any advance or abbreviating in 4Q in any of the region? If you could aloof accord some blush there. Acknowledge you.

Marty Connor — Chief Banking Officer

Sure. I anticipate the margins by arena performed appealing abundant as expected, with a few actuality up, a few actuality flat, and a few actuality down, absolutely apprenticed by mix as abundant as annihilation else.

Alad– JP Morgan — Analyst

I anticipate you mentioned aftermost division you accepted four of the six regions to improve. So, is that beneath affectionate of what you were expecting?

Marty Connor — Chief Banking Officer

So, we came in a little bit beneath those expectations, as I mentioned in my anterior comments.

Alad– JP Morgan — Analyst

Okay, acknowledge you.

Doug Yearley — Chairman andChief Executive Officer

You’re welcome.

Operator

The abutting catechism comes from Matthew Bouley with Barclays. Amuse go ahead.

Matthew Bouley — Barclays — Analyst

Hi. Acknowledge you for demography my questions. On the California segment, I think, Doug, you gave the animadversion that you abide to apprehend gross margins aloft the aggregation boilerplate in 2019. Is there any bigger point you can accord on the, I guess, the administration of California margins based on what you accept in the excess today? Acknowledge you.

Doug Yearley — Chairman andChief Executive Officer

I anticipate the California margins accept run 400 to 600 abject credibility aloft the aggregation average, and I anticipate the best advice we can accord you for ’19 for the aboriginal division is that they’ll abide to do so.

Matthew Bouley — Barclays — Analyst

Okay. Acknowledge you for that. And then, the acreage and advantage premiums — you mentioned the 160,000 average. Is there any faculty you can give, or if you can accord what that looks like I assumption in the added contempo orders? Any afterimage into November? Basically, the trend there — if there’s any faculty you can accord on affectionate of what accomplishments you may be demography with those premiums potentially to affectionate of activation sales. Acknowledge you.

Doug Yearley — Chairman andChief Executive Officer

It’s the same. But to clarify, we’re talking about the decorator and structural options that the buyers accept through our action at the sales centermost and our architecture studios. And afresh on top of that, the alone lot premiums we allegation for specific home sites that may accept a appropriate bulk because of angle or whatever abroad they may have. And that cardinal of $160,000, accumulation upgrades with lot premium, has not changed.

Matthew Bouley — Barclays — Analyst

Okay. Acknowledgment a lot.

Doug Yearley — Chairman andChief Executive Officer

Thank you.

Operator

The abutting catechism comes from Jade Rahmani with KBW. Amuse go ahead.

Ryan Tomasello — KBW — Analyst

This is absolutely Ryan Tomasello on for Jade. Acknowledgment for demography the questions. Aloof in burghal living, can you quantify how absorptions accept trended in New York Burghal in both your wholly endemic and JV projects in the division and conceivably the accomplished two abode and how that compares with your expectations?

Marty Connor — Chief Banking Officer

Sure. I anticipate in New York City, we accept almost low inventory, and absorptions accept connected to be almost low. That’s not absolutely new. But the New Jersey city-living projects, we accept apparent a bit of a slowing constant with our all-embracing aggregation results. We still absolutely like the gross allowance that comes out of this business and the locations.

Ryan Tomasello — KBW — Analyst

And are you able to quantify how the gross allowance cogwheel befuddled out in 2018 against the broader aggregation average?

Doug Yearley — Chairman andChief Executive Officer

Gregg has that. Do you appetite to accord the answer?

Gregg Ziegler — Chief Vice President and Treasurer

Sure. Burghal active for the abounding year assured up in a low 28% against the aggregation average.

Ryan Tomasello — KBW — Analyst

And then, aloof all-embracing how do you appearance fundamentals and accumulation in the address market? Are you seeing an added use of incentives or bulk cuts amid added projects from added developers and maybe how connected do you anticipate it will booty the bazaar to blot the account levels in a bazaar like New York Burghal that seems to be oversupplied at the higher-end artefact levels?

Doug Yearley — Chairman andChief Executive Officer

Our experience, as we’ve talked about on above-mentioned calls, is that at the college bulk point and for the above units that drive a college bulk point, there is absolutely some incentivizing and the bazaar has been softer. We accept repositioned our barrio so that we accept abate units that we try to accumulate at about $2,000.00 per aboveboard bottom affairs price. And at that end of the market, things are abundant stronger.

Ryan Tomasello — KBW — Analyst

Thanks for demography the questions.

Doug Yearley — Chairman andChief Executive Officer

You’re absolute welcome. Acknowledge you.

Operator

The abutting catechism comes from Alex Barron with Accommodation Analysis Center. Amuse go ahead.

Alex Barron — Accommodation Analysis Centermost — Analyst

Thank you. I was acquisitive to ask a few questions about the Chinese buyers in California. I was aloof aggravating to accept how they analyze to I assumption boilerplate buyers, decidedly aback it comes to financing. Are they about added banknote buyers, or are assimilation ante absolutely affecting them? That’s, I guess, catechism cardinal one.

Marty Connor — Chief Banking Officer

They’re added banknote buyers. Aback they get a mortgage, it tends to be a abundant lower LTV. I anticipate they are actuality beneath impacted by assimilation ante activity up than they are impacted by their adeptness to advance in the U.S. due to maybe some abbreviating of — or administration of some Chinese government action on adopted investment.

Alex Barron — Accommodation Analysis Centermost — Analyst

Got it. Okay, that makes sense. And afresh addition question. Do they about tend to buy added of the specs that you guys start, or are they added body to order, or are they aloof affectionate of boilerplate on that front?

Doug Yearley — Chairman andChief Executive Officer

Average.

Alex Barron — Accommodation Analysis Centermost — Analyst

Okay. And afresh one for Marty on assimilation expense. So, this year your assimilation through bulk of appurtenances awash was decidedly college your assimilation incurred as compared to 2017. So, what can we apprehend for 2019? Do you anticipate the assimilation of the bulk of appurtenances awash is activity to appear bottomward added in band with assimilation incurred?

Marty Connor — Chief Banking Officer

I anticipate you’re gonna see, for the aboriginal division of 2019, assimilation in bulk of sales be absolute constant with assimilation in bulk of sales from 2018.

Alex Barron — Accommodation Analysis Centermost — Analyst

Got it. Okay. Acknowledgment so much.

Doug Yearley — Chairman andChief Executive Officer

You’re welcome.

Operator

The abutting catechism comes from Ken Ling with City. Amuse go ahead.

Ken Ling — Citi — Analyst

Good afternoon. Acknowledgment for demography my questions. Considering the solid SG&A advantage in 2018 and the auspicious bump into aboriginal division of ’19, how abundant aerodrome do you apprehend in improvement, decidedly in this accepted operating environment?

Marty Connor — Chief Banking Officer

I anticipate we’ve accustomed you some advice for the aboriginal quarter, and we’ve explained why we’re not giving advice aloft that and we’re gonna leave it at that, Ken.

Ken Ling — Citi — Analyst

Got it. And I assumption on a agnate note, is there allowance to access in appliance for the TIS — the Toll Chip Systems?

Doug Yearley — Chairman andChief Executive Officer

Right now, TIS operates from Charlotte up to Boston and out to Detroit. And that is controlled by busline and how connected it takes to get the panels and trusses from the plan to the jobsite. And so, unless we acquisition added markets aural that division I aloof described, the acknowledgment would be no, it’s accomplished its geographic accommodation appropriate now.

Marty Connor — Chief Banking Officer

Or acquisition some new plants to accomplish adjoining to our added markets. And that’s commodity that we do accessory at, but annihilation approaching appropriate now.

Doug Yearley — Chairman andChief Executive Officer

Correct.

Ken Ling — Citi — Analyst

Thank you.

Doug Yearley — Chairman andChief Executive Officer

You’re welcome.

Operator

The aftermost catechism today comes from Leah Samuelson with RBC Capital Markets.

Mike Dahl — RBC Capital Markets — Analyst

Hi, guys. It’s absolutely Mike Dahl on. Can you apprehend me?

Marty Connor — Chief Banking Officer

Yes, we can, Mike.

Mike Dahl — RBC Capital Markets — Analyst

Thanks for applicable me in. A brace questions. Aloof capital to amphitheater aback on the assimilation side, and afresh not aggravating to pin you bottomward on a ’19 number, but, Doug, you’ve fabricated a few comparisons. Obviously, ’17 was a absolutely able-bodied year aloft the board, and decidedly in California. And then, you’ve talked about ’16 and you’ve talked about affectionate of the aeon afterwards the abate anger as far as things that we can accessory at as guideposts, but I assumption I’m absolutely aggravating to accept if you can accord us a bulletin about or what that bulletin is about how you’re cerebration about the business from an assimilation level? Because I anticipate a year ago the comments were six months ago, accepted mix of business maybe produces 30 to 32 sales, commodity like that, accomplishment the year at 28, those above-mentioned years absolutely a bit lower. So, aloof any added blush there.

Doug Yearley — Chairman andChief Executive Officer

Mike, as I’ve said, I don’t accept that clear brawl as to breadth this bazaar takes us. What I will acquaint you is we accept the land, we accept the communities opened, we accept the teams, we accept the brand, and we are accessible and able to go get added sales and abound this aggregation as we accept in the past.

Mike Dahl — RBC Capital Markets — Analyst

Got it. Added question, aloof clarification. Marty, you fabricated a animadversion about 4Q gross margins. You didn’t get some Brownfield Cleanup credits that you expected. Could you quantify that and aloof let us apperceive if that’s allotment of —

Marty Connor — Chief Banking Officer

So, it was $5 to $6 million. Those credits accept been accustomed by the accompaniment in question; they aloof accept yet to be released.

Mike Dahl — RBC Capital Markets — Analyst

Is that allotment of the 1Q guide?

Marty Connor — Chief Banking Officer

It is commodity we apprehend to appear in 2019.

Mike Dahl — RBC Capital Markets — Analyst

Got it. Okay, acknowledgment guys, and acceptable luck.

Marty Connor — Chief Banking Officer

Thank you.

Doug Yearley — Chairman andChief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to about-face the appointment aback over to Doug Yearley for any closing remarks.

Doug Yearley

Anita, acknowledge you absolute much. Thanks, everyone. We acknowledge all your abutment and assimilation and ambition you all a admirable anniversary season.

Operator

This appointment has now concluded. Acknowledge you for accessory today’s presentation. You may now disconnect.

Duration: 55 minutes

Doug Yearley — Chief Executive Officer and Director

Marty Connor — Chief Banking Officer

Don Salmon — President and Chief Executive Officer of TBI Mortgage

Gregg Ziegler — Chief Vice President and Treasurer

Stephen East — Wells Fargo — Analyst

Alan Ratner — Zelman & Assembly — Analyst

John Lovallo — Bank of America Merrill Lynch — Analyst

Nishu Sood — Deutsche Bank — Analyst

Jack Micenko– SIG– Analyst

Susan Maklari — Acclaim Suisse — Analyst

Stephen Kim — Evercore ISI– Analyst

Buck Horne — Raymond James and Assembly — Analyst

Matthew Bouley — Barclays — Analyst

Ryan Tomasello — KBW — Analyst

Alex Barron — Accommodation Analysis Centermost — Analyst

Ken Ling — Citi — Analyst

Mike Dahl — RBC Capital Markets — Analyst

More TOL analysis

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