Toll Brothers, Inc.'s TOL shares declined 2.4% in the after-hour trading session, following its third-quarter fiscal 2019 earnings release. Although the company's earnings and revenues topped the respective Zacks Consensus Estimate, the metrics decreased on a year-over-year basis, thanks to soft demand.
Although declining mortgage rates, a limited supply of homes and solid job market have helped Toll Brothers to increase prices even in a weak demand environment, lower orders are a pressing concern.
Earnings & Revenue Discussion
The country's leading luxury homebuilder reported earnings of $1.00 per share in the quarter under review, surpassing the Zacks Consensus Estimate of 82 cents by 22%. However, the said figure dropped 20.6% from the year-ago figure of $1.26 as a result of lower revenues and margins.
Consolidated revenues of $1.77 billion topped the consensus mark of $1.7 billion by 4.1%. The reported figure, however, decreased 7.7% year over year due to lower deliveries, partly offset by higher average selling prices.
Toll Brothers Inc. Price, Consensus and EPS Surprise
Toll Brothers Inc. price-consensus-eps-surprise-chart | Toll Brothers Inc. Quote
Toll Brothers operates under two reportable segments, namely Traditional Home Building and Urban Infill ("City Living").
Revenues from Traditional Home Building totaled $1.68 billion, up 9.6% year over year, while that of City Living increased 42.1% to $71.9 million during the quarter.
Inside the Headline Numbers
Consolidated homebuilding revenues decreased 7.7% year over year to $1.77 billion. Homebuilding deliveries during the quarter declined 11.2% year over year to 1,994 units. Deliveries decreased in all the regions served by the company, except South. The decline was fully offset by a year-over-year increase in deliveries in Citi Living to 40 units from 29 units a year ago.
The average price of homes delivered was $881,200 in the quarter, up 3.4% from the year-ago level of $851,900.
The number of net signed contracts or orders during the reported quarter was 2,241 units, down 3% year over year. The value of net signed contracts was $1.87 billion, reflecting a decrease of 8% from the year-ago quarter.
At the end of the fiscal third quarter, Toll Brothers had a backlog of 6,839 homes, representing a 4% year-over-year decline. Moreover, potential revenues from backlog declined 10% year over year to $5.84 billion. The average price of homes in backlog totaled $854,500, down from $912,600 at the end of the comparable period of fiscal 2018.
Cancellation rate during the reported quarter was 6.5% compared with 5.4% in the prior-year period.
The company's home sales adjusted gross margin was 23.1%, contracting 120 basis points (bps) in the quarter.
SG&A expenses, as a percentage of home sales revenues, came in at 10.6%, up 150 bps from the year-ago quarter. Operating margin of 9.7% was down 230 bps in the quarter.
Toll Brothers had $836.3 million cash and cash equivalents as of Jul 31, 2019 compared with $1.18 billion at fiscal 2018-end.
During the fiscal third quarter, the company repurchased approximately 3.98 million shares, at an average price of $35.74 per share, for a total purchase price of about $142.2 million.
Fiscal 2019 Guidance
For full-year fiscal 2019, home deliveries are anticipated in the range of 7,800-8,100 units (versus 8,265 units reported in fiscal 2018) at an average price of $860,000-$880,000 (the year-ago figure was $864,300).
Toll Brothers expects adjusted home sales gross margin of about 23%, down from 23.7% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2019 are projected to be nearly 10.4% (compared with 9.6% in fiscal 2018).
Toll Brothers currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
PulteGroup Inc.’s PHM second-quarter 2019 earnings and revenues surpassed the respective Zacks Consensus Estimate. Both earnings and revenues, however, decreased 3.4% from the year-ago level.
NVR, Inc. NVR reported second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate. Also, the reported figure increased 8.2% from the prior-year quarter. Total revenues (Homebuilding & Mortgage Banking fees combined) were $1.8 billion in the quarter, up 1% year over year on higher deliveries and prices.
D.R. Horton, Inc.’s DHI third-quarter fiscal 2019 earnings came in at $1.26 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.06 by 18.9%. The reported figure also increased 7% from the year-ago profit level of $1.18. Total revenues (Homebuilding, Forestar and Financial Services) came in at $4.91 billion, up 10.6% year over year. The reported figure also topped the consensus mark of $4.51 billion.
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