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Toll Brothers (TOL) Up 4.8% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Toll Brothers (TOL - Free Report) . Shares have added about 4.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Toll Brothers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Toll Brothers, Inc. reported fourth-quarter fiscal 2022 (ended Oct 31, 2022). Both the top and bottom lines topped the Zacks Consensus Estimate and the company delivered strong quarterly earnings and improved gross margin during the quarter despite the ongoing challenges in the industry. However, the homebuilder continues to grapple with a softer demand environment, given the dramatic increase in mortgage rates since March 2022.
Looking forward, Douglas C. Yearley, Jr., chairman and chief executive officer, said, “Despite the softer market, FY 2023 is positioned to be another solid, high-margin year for us because of our strong backlog of 8,098 homes valued at $8.9 billion at fiscal year end. We are projecting an adjusted gross margin of 27.0% and earnings per share of $8.00 to $9.00 in FY 2023. This would increase our book value per share to above $60 at fiscal year-end 2023.” He further added, “As a primarily build-to-order home builder, we are strategically balancing the delivery of our large, high-margin backlog in FY 2023 with the generation of new sales for future deliveries.”
Earnings & Revenue Discussion
This Fort Washington, PA-based homebuilder reported adjusted earnings of $4.67 per share (after adjusting for after-tax settlement benefit related to a natural gas leak that occurred in Southern California in late 2015), which beat the Zacks Consensus Estimate of $3.88 by 20.4% and increased 54.6% from the year-ago period.
Total revenues (including Home sales and Land sales and others) came in at $3.71 billion, which beat the consensus mark of $3.22 billion by 15.4% and rose 22.1% year over year. The uptrend was backed by higher deliveries and pricing during the quarter.
Inside the Headlines
Toll Brothers now operates under five reportable segments, namely, North, Mid-Atlantic, South, Mountain and Pacific. Notably, during the earnings call, the company concluded that City Living operations no longer meet the definition of an operating segment, primarily due to the change in structure and a shift in strategy for its operations. Therefore, reported figures of the prior periods have been reclassified to conform to the fiscal 2022 presentation. The change did not have any impact on its consolidated financial operations, earnings per share or cash flows for the periods presented.
The company’s total home sales revenues grew 21.4% from the prior-year quarter to $3.58 billion. Homes delivered grew 12.7% year over year to 3,765 units. Deliveries increased across all the geographic regions served by the company baring North and Mid-Atlantic. The average price of homes delivered was $951,100 for the quarter, up from the year-ago level of $883,100. The number of net signed contracts for the reported quarter was 1,186 units, down 59.9% year over year. The value of net signed contracts was $1.32 billion, reflecting a decrease from the year-ago level of $3 billion.
At the fiscal 2022-end, Toll Brothers had a backlog of 8,098 homes, representing a year-over-year decrease from 10,302 units in fiscal 2021. Also, potential revenues from backlog declined year over year to $8.87 billion from $9.50 billion reported in fiscal 2021. The average price of homes in backlog totaled $1,095,800, up from $922,100 at the end of fiscal 2021.
The cancelation rate (as a percentage of signed contracts) for the reported quarter was 20.8% compared with 4.6% in the prior-year period.
Margins
The company’s adjusted home sales gross margin was 29%, expanding 310 basis points for the quarter. SG&A expenses — as a percentage of home sales revenues — were 7.7%, which decreased from 8.8% in the year-ago quarter.
Fiscal 2022 Highlights
Total revenues of $10.3 billion increased 16.9% from $8.8 billion in fiscal 2021. Earnings of $10.90 per share increased from $6.63 per share a year ago. Adjusted home sale gross margin also improved to 27.5% from 25% in fiscal 2021. Home deliveries grew to 10,515 units from 9,986 units a year ago. Average sale price per unit increased to $923,600 from $844,400 a year ago.
Financials
Toll Brothers had cash and cash equivalents of $1,346.8 million at the fiscal 2022-end compared with $1,638.5 million at the fiscal 2021-end. At the fiscal 2022-end, it had $1.8 billion available under the $1.9 billion bank revolving credit facility, scheduled to mature in November 2026.
Total debt at the fiscal 2022-end was $3.33 billion, down from $3.56 billion at the fiscal 2021-end. Debt to capital was 35.7% at the fiscal fourth-quarter end versus 37.5% at fiscal third-quarter 2022 and 40.2% at 2021-end. During the quarter, the company repurchased 3.7 million shares of its common stock at an average price of $42.45 per share for approximately $158.9 million.
Fiscal First-Quarter Guidance
Toll Brothers expects home deliveries of 1,750-1,850 units (indicating a decrease from 1,929 units delivered in the prior-year quarter) at an average price of $950,000-$970,000 (suggesting a rise from $874,700 a year ago).
Adjusted home sales gross margin is expected to be 27%, implying an increase from 25.6% in the year-ago period. SG&A expenses are estimated to be 13.5% of home sales revenues, indicating a rise from 13.4% in the year-ago period. The company expects the effective tax rate to be 26%.
Fiscal 2023 Guidance
For fiscal 2023, home deliveries are anticipated to be 8,000-9,000 units at an average price of $965,000-$985,000. Toll Brothers expects an adjusted home sales gross margin of 27% compared with 27.5% reported in fiscal 2021. SG&A expenses, as a percentage of home sales revenues, for fiscal 2023 are projected to be 11.3% versus 10.1% reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 19.03% due to these changes.
VGM Scores
Currently, Toll Brothers has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Toll Brothers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Toll Brothers (TOL) Up 4.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Toll Brothers (TOL - Free Report) . Shares have added about 4.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Toll Brothers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Toll Brothers (TOL - Free Report) Q4 Earnings & Revenues Top, Up Y/Y
Toll Brothers, Inc. reported fourth-quarter fiscal 2022 (ended Oct 31, 2022). Both the top and bottom lines topped the Zacks Consensus Estimate and the company delivered strong quarterly earnings and improved gross margin during the quarter despite the ongoing challenges in the industry. However, the homebuilder continues to grapple with a softer demand environment, given the dramatic increase in mortgage rates since March 2022.
Looking forward, Douglas C. Yearley, Jr., chairman and chief executive officer, said, “Despite the softer market, FY 2023 is positioned to be another solid, high-margin year for us because of our strong backlog of 8,098 homes valued at $8.9 billion at fiscal year end. We are projecting an adjusted gross margin of 27.0% and earnings per share of $8.00 to $9.00 in FY 2023. This would increase our book value per share to above $60 at fiscal year-end 2023.” He further added, “As a primarily build-to-order home builder, we are strategically balancing the delivery of our large, high-margin backlog in FY 2023 with the generation of new sales for future deliveries.”
Earnings & Revenue Discussion
This Fort Washington, PA-based homebuilder reported adjusted earnings of $4.67 per share (after adjusting for after-tax settlement benefit related to a natural gas leak that occurred in Southern California in late 2015), which beat the Zacks Consensus Estimate of $3.88 by 20.4% and increased 54.6% from the year-ago period.
Total revenues (including Home sales and Land sales and others) came in at $3.71 billion, which beat the consensus mark of $3.22 billion by 15.4% and rose 22.1% year over year. The uptrend was backed by higher deliveries and pricing during the quarter.
Inside the Headlines
Toll Brothers now operates under five reportable segments, namely, North, Mid-Atlantic, South, Mountain and Pacific. Notably, during the earnings call, the company concluded that City Living operations no longer meet the definition of an operating segment, primarily due to the change in structure and a shift in strategy for its operations. Therefore, reported figures of the prior periods have been reclassified to conform to the fiscal 2022 presentation. The change did not have any impact on its consolidated financial operations, earnings per share or cash flows for the periods presented.
The company’s total home sales revenues grew 21.4% from the prior-year quarter to $3.58 billion. Homes delivered grew 12.7% year over year to 3,765 units. Deliveries increased across all the geographic regions served by the company baring North and Mid-Atlantic. The average price of homes delivered was $951,100 for the quarter, up from the year-ago level of $883,100.
The number of net signed contracts for the reported quarter was 1,186 units, down 59.9% year over year. The value of net signed contracts was $1.32 billion, reflecting a decrease from the year-ago level of $3 billion.
At the fiscal 2022-end, Toll Brothers had a backlog of 8,098 homes, representing a year-over-year decrease from 10,302 units in fiscal 2021. Also, potential revenues from backlog declined year over year to $8.87 billion from $9.50 billion reported in fiscal 2021. The average price of homes in backlog totaled $1,095,800, up from $922,100 at the end of fiscal 2021.
The cancelation rate (as a percentage of signed contracts) for the reported quarter was 20.8% compared with 4.6% in the prior-year period.
Margins
The company’s adjusted home sales gross margin was 29%, expanding 310 basis points for the quarter. SG&A expenses — as a percentage of home sales revenues — were 7.7%, which decreased from 8.8% in the year-ago quarter.
Fiscal 2022 Highlights
Total revenues of $10.3 billion increased 16.9% from $8.8 billion in fiscal 2021. Earnings of $10.90 per share increased from $6.63 per share a year ago. Adjusted home sale gross margin also improved to 27.5% from 25% in fiscal 2021. Home deliveries grew to 10,515 units from 9,986 units a year ago. Average sale price per unit increased to $923,600 from $844,400 a year ago.
Financials
Toll Brothers had cash and cash equivalents of $1,346.8 million at the fiscal 2022-end compared with $1,638.5 million at the fiscal 2021-end. At the fiscal 2022-end, it had $1.8 billion available under the $1.9 billion bank revolving credit facility, scheduled to mature in November 2026.
Total debt at the fiscal 2022-end was $3.33 billion, down from $3.56 billion at the fiscal 2021-end. Debt to capital was 35.7% at the fiscal fourth-quarter end versus 37.5% at fiscal third-quarter 2022 and 40.2% at 2021-end. During the quarter, the company repurchased 3.7 million shares of its common stock at an average price of $42.45 per share for approximately $158.9 million.
Fiscal First-Quarter Guidance
Toll Brothers expects home deliveries of 1,750-1,850 units (indicating a decrease from 1,929 units delivered in the prior-year quarter) at an average price of $950,000-$970,000 (suggesting a rise from $874,700 a year ago).
Adjusted home sales gross margin is expected to be 27%, implying an increase from 25.6% in the year-ago period. SG&A expenses are estimated to be 13.5% of home sales revenues, indicating a rise from 13.4% in the year-ago period. The company expects the effective tax rate to be 26%.
Fiscal 2023 Guidance
For fiscal 2023, home deliveries are anticipated to be 8,000-9,000 units at an average price of $965,000-$985,000. Toll Brothers expects an adjusted home sales gross margin of 27% compared with 27.5% reported in fiscal 2021. SG&A expenses, as a percentage of home sales revenues, for fiscal 2023 are projected to be 11.3% versus 10.1% reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 19.03% due to these changes.
VGM Scores
Currently, Toll Brothers has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Toll Brothers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.