Homebuilder Tri Pointe Homes (NYSE:TPH) reported Q4 CY2024 results topping the market’s revenue expectations, but sales fell by 2.2% year on year to $1.23 billion. Its GAAP profit of $1.37 per share was 6.4% above analysts’ consensus estimates.
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Tri Pointe Homes (TPH) Q4 CY2024 Highlights:
- Revenue: $1.23 billion vs analyst estimates of $1.21 billion (2.2% year-on-year decline, 1.5% beat)
- EPS (GAAP): $1.37 vs analyst estimates of $1.29 (6.4% beat)
- Adjusted EBITDA: $235.3 million vs analyst estimates of $215.8 million (19.1% margin, 9% beat)
- Operating Margin: 12.9%, in line with the same quarter last year
- Backlog: $1.16 billion at quarter end, down 27.8% year on year (large miss)
- Market Capitalization: $3.32 billion
“Tri Pointe Homes delivered strong fourth quarter results, capping off another exceptional year for our company,” said Tri Pointe Homes Chief Executive Officer Doug Bauer.
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
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Tri Pointe Homes’s 7.7% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.
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 1.4% 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 $1.16 billion in the latest quarter and averaged 8.8% 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’s revenue fell by 2.2% year on year to $1.23 billion but beat Wall Street’s estimates by 1.5%.
Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
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Operating Margin
Tri Pointe Homes 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 14.3%. 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, Tri Pointe Homes’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years , highlighting the long-term consistency of its business.
This quarter, Tri Pointe Homes generated an operating profit margin of 12.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in 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 26.8% compounded annual growth rate over the last five years, higher than its 7.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.
We can take a deeper look into Tri Pointe Homes’s earnings quality to better understand the drivers of its performance. A five-year view shows that Tri Pointe Homes has repurchased its stock, shrinking its share count by 32.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings. 
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 Tri Pointe Homes, its two-year annual EPS declines of 6.9% mark a reversal from its (seemingly) healthy five-year trend. We hope Tri Pointe Homes can return to earnings growth in the future.
In Q4, Tri Pointe Homes reported EPS at $1.37, in line with the same quarter last year. This print beat analysts’ estimates by 6.4%. Over the next 12 months, Wall Street expects Tri Pointe Homes’s full-year EPS of $4.83 to shrink by 6.2%.
Key Takeaways from Tri Pointe Homes’s Q4 Results
We were impressed by how Tri Pointe Homes beat analysts’ revenue and EBITDA expectations this quarter. On the other hand, its backlog missed significantly, and this is a leading indicator of future revenue. Management blamed "elevated mortgage rates" for the weakness. The stock traded down 5.5% to $34.21 immediately after reporting.
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.
