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Toll Brothers (TOL) to Report Q4 Earnings: What's in Store?

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Toll Brothers Inc. (TOL - Free Report) is scheduled to report fourth-quarter fiscal 2020 results on Dec 7, after the closing bell.

In the last reported quarter, the company’s earnings and revenues beat the Zacks Consensus Estimate by 30.4% and 6.8%, respectively. However, earnings and revenues of this homebuilding company dropped 10% and 6.5%, respectively, from the year-ago levels.

Markedly, Toll Brothers reported better-than-expected earnings in three of the last four quarters, the average surprise being 13.4%.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has slipped 0.8% to $1.23 per share over the past 30 days. This indicates a 12.8% drop from the year-ago earnings of $1.41 per share. The consensus mark for revenues is $2.05 billion, suggesting a 13.6% year-over-year decline.

Toll Brothers Inc. Price and EPS Surprise

 

Toll Brothers Inc. Price and EPS Surprise

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

 

Factors to Consider

This luxury homebuilding company is expected to have witnessed a decline in year-over-year earnings in the final quarter of fiscal 2020 due to lower revenues and margins. A combination of delayed deliveries and unfavorable mix has been impacting its performance. Nonetheless, Toll Brothers expects fiscal fourth deliveries and average price per unit to increase from fiscal third-quarter levels as strength in signed contracts continued into August, buoyed by low interest rates and continued undersupply of homes.

During fiscal third-quarter earnings call, Toll Brothers highlighted that it expects home deliveries for the quarter in the range of 2,400-2,550 units at an average selling price or ASP of $815,000-$835,000 (suggesting a decrease from the year-ago figure of $857,800). Home deliveries in the year-ago period were 2,672 units.

Toll Brothers expects adjusted home sales gross margin of 21.5%, implying a decline from 21.9% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, are projected at 9% (indicating no change from the year-ago period).

Gross margin-related woes are expected to get reflected in its fiscal fourth-quarter results. Modest pricing to combat affordability woes of homebuyers as well as rising lumber cost is expected to have weighed on margins.

Also, persistent pressure on SG&A expense is expected to have weighed on the bottom line in the quarter. In order to mitigate revenue-related woes, the company has been making investments that comprise implementation of IT system upgrades. This has been resulting in increased SG&A, as a percentage of revenues.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for Toll Brothers this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here, as you will see below.

Earnings ESP: Toll Brothers has an Earnings ESP of -4.62%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Toll Brothers — which shares its space with Lennar (LEN - Free Report) , D.R. Horton (DHI - Free Report) and PulteGroup (PHM - Free Report) in the Zacks Building Products - Home Builders industry — currently carries a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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