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Toll Brothers (TOL) Q3 Earnings Top, Orders Fall, Stock Down

Zacks Equity Research

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 and EPS Surprise

Toll Brothers Inc. price-consensus-eps-surprise-chart | Toll Brothers Inc. Quote

Segment Detail

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.

Margins

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.

Financials

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).

Zacks Rank

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.

Peer Releases

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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