Andrew Azzi

Andrew Azzi asked about Century Communities' expectations for the spring selling season, consumer behavior, and the potential for reduced incentives. He also inquired if governmental support for homebuyers was factored into the company's 2026 guidance and the expected quarter-to-quarter trend for community count growth.

Answer

Scott Dixon, Chief Financial Officer, stated that January sales pace was slower year-over-year but order activity and potential leads improved sequentially. He expressed hope for a better spring selling season in 2026 compared to 2025, noting that any administration efforts would provide additional help beyond current guidance. Dixon also indicated that average community count is expected to grow throughout 2026, particularly in the middle and latter half of the year.

Andrew Azzi inquired about Century Communities' expectations for the spring selling season, consumer behavior, and the potential impact of reduced incentives, as well as the influence of administration efforts on guidance and the quarter-over-quarter outlook for community count growth.

Answer

Scott Dixon, Chief Financial Officer, noted that January's sales pace was slower year-over-year but showed sequential improvement in orders and potential leads, expressing hope for a better spring selling season than 2025. He clarified that any administration efforts would provide additional help beyond current guidance. Regarding community count, Dixon explained an anticipated dip at year-end due to closeouts and specs, with expected growth throughout 2026, particularly in the middle and latter half.

Andrew Azzi from JP Morgan Chase & Co asked for details on the monthly sales cadence during Q2 (April, May, June) and inquired about the company's exposure to Canadian lumber given potential tariffs.

Answer

CFO J. Scott Dixon confirmed sequential sales improvement through the quarter, with May stronger than April and June stronger than May, benefiting from rate dips. He noted July has been 'a little bit choppy.' Regarding lumber, Dixon stated that 20-30% is sourced from Canada, depending on the market, and the company is waiting to see the final impact of any tariffs.

Andrew Azzi, on for Michael Rehaut, asked for more detail on demand trends throughout the first quarter and into the volatile April period. He also asked a broader question about the company's long-term 10% annual growth target and how it breaks down between community count growth and sales pace.

Answer

CFO John Dixon described Q1 demand as following typical, albeit muted, seasonality with sequential improvement through March before the consumer paused in April due to market volatility. Regarding long-term growth, Dixon emphasized that the strategy remains focused on increasing community count, which is expected to grow in the mid-single-digits in 2025, to drive volume and leverage overhead, while ensuring new communities underwrite to current market conditions.

Andrew Azzi, on for Michael Rehaut, asked for the company's outlook on lot cost inflation into next year and whether they were observing increased competition in key markets like Texas and Florida.

Answer

CFO John Dixon indicated lot costs are expected to be stable through early Q1 2025, with 'normal cost inflation' anticipated in the back half of the year. Chairman and Co-CEO Dale Francescon commented that while Texas is always competitive, the company's increased scale provides leverage. He noted that Florida, representing about 10% of closings, is holding up well in their primary submarket of Jacksonville.

Andrew Azzi of JPMorgan Chase & Co. requested an update on community count growth expectations and the strategic rationale for entering the Dallas-Fort Worth market amid potential oversupply.

Answer

EVP and CFO Russell Devendorf projected moderate community count growth and noted that spec inventory levels are slightly elevated. President and CEO Gregory Bennett explained that DFW is a natural expansion from their Houston launchpad. Devendorf added that the company's strong balance sheet allows them to opportunistically acquire finished lots with low risk in a dislocated market, aligning with their long-term view.

Andrew Azzi of JPMorgan Chase & Co. asked for clarification on the discrepancy between the backlog gross margin of approximately 24% and the lower Q1 2025 guidance, and also requested a framework for understanding lot cost inflation.

Answer

EVP & CFO Russ Devendorf explained that the lower Q1 margin guidance reflects increased sales incentives used in Q4 2024 to maintain sales pace amidst rising interest rates. He noted that backlog margins for homes closing later in the year are trending slightly higher. Devendorf identified lot cost inflation as a primary source of margin pressure, estimating a 200-300 basis point impact, which is more significant than the stable vertical construction costs.

Andrew Azzi, on behalf of JPMorgan Chase & Co, followed up on the sales improvement in June and July, asking for more detail on sales pace and whether community count dynamics were a factor. He also asked about the expected trend for share repurchases for the remainder of the year.

Answer

Chairman & CEO Eric Lipar reiterated that July sales were better than June's, crediting the sales team's execution and noting that underlying demand remains. EVP of IR & Capital Markets Joshua Fattor addressed capital allocation, stating that the immediate priority is reducing overall leverage and debt, though share repurchases remain an option, especially given the stock's current valuation.

Andrew Azzi inquired about the factors enabling LGI Homes to maintain steady gross margins compared to its peers and the outlook for margins in the coming quarters. He also asked for color on land inflation, specifically the cost of land contracted today and the difference between land purchase and development costs.

Answer

CEO Eric Lipar explained that LGI Homes' higher gross margins are partly due to its extensive in-house land development, which allows the company to capture both development and homebuilding profits. He contrasted this with peers who rely more on expensive land banking, creating a cost advantage for LGI. Lipar noted that while raw land prices are not decreasing, development costs remain elevated. He also mentioned seeing more opportunities to acquire finished lots from capital-constrained private builders.

Inquired about the strategy for sales synergies and sales force integration following the proposed merger, and about future plans for acquiring recycling assets and the expected cost benefits.

Answer

It is too early for specifics on sales force integration, but the focus is on stability and driving material conversion. They are increasingly confident in achieving sales synergies. On recycling, the company continues to target an incremental $40 million in cost savings and will invest to meet volume and regional supply needs. A recent acquisition is expected to provide benefits in 2026.

Andrew Azzi of JPMorgan asked for an update on the long-term 3-5% R&R growth target for 2026 and the company's outlook for the repair and remodel market next year. He also questioned the current size and growth prospects of the pro paint business.

Answer

CEO Keith Allman confirmed that the long-term 3-5% R&R growth expectation remains unchanged, though the timing of a return to this rate is uncertain. He noted the pro paint business is approximately $900 million in size and is expected to continue growing above the market and gaining share, while the company is holding its share in the challenged DIY market.

Andrew Azzi, on behalf of Michael Rehaut, asked about the expected net impact from cost reductions and SKU simplification in the Flooring Rest of World segment. He also inquired about the growth outlook for LVT and laminate.

Answer

President and COO William Christopher Wellborn addressed the challenging market in Flooring Rest of World, noting that promotional activities and weak demand are headwinds, but declining inflation is leading to rate cuts. On LVT, he stated that while sales are under pressure, Mohawk is outperforming the market, benefiting from productivity and launching new products. Chairman and CEO Jeff Lorberbaum added that U.S. laminate volume is increasing as it gains share as a waterproof alternative to LVT, with new production coming online to meet demand.