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Toll Brothers (TOL) Q3 Earnings & Revenues Top, Margin Up

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Toll Brothers, Inc.’s (TOL - Free Report) shares inched up 1.8% in the after-hours trading session on Aug 24, after it reported strong third-quarter fiscal 2021 (ended Jul 31, 2021) results. Both the top and bottom lines topped the Zacks Consensus Estimate and increased significantly on a year-over-year basis. The company has been benefiting from its strategy of broadening the product lines, price points and geographies.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “Demand continues to be very strong. Net signed contracts were up 35% in dollars to approximately $3 billion compared to the prior year period. The housing market is being driven by many strong fundamentals, including low mortgage rates, favorable millennial-driven demographics, a decade of pent-up demand, low new home supply, and a tight resale market. We expect strong and sustainable demand for our homes in the years to come.”

He continued, “Our record backlog, our focus on capital and operating efficiency, and the continued strength of the housing market give us confidence that our full FY 2022 margins will significantly exceed the strong margins we project for our FY 2021 fourth quarter and that our return on beginning equity will exceed 20% in FY 2022 and beyond.”

On Aug, 24, 2021, Toll Brothers announced a strategic partnership with Equity Residential to selectively acquire and develop sites for new rental apartment communities in Metro Boston, MA; Atlanta, GA; Austin, TX; Denver, CO; Orange County/San Diego, CA; Seattle, WA, and Dallas-Fort Worth, TX.

Earnings & Revenue Discussion

The country’s leading luxury homebuilder reported earnings of $1.87 per share, surpassing the Zacks Consensus Estimate of $1.52 by 23%. Also, the said figure grew 74.4% from the year-ago figure of 90 cents per share as a result of higher revenues and margins.

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

Revenues of $2.26 billion topped the consensus mark of $2.22 billion by 1.7% and increased 26.8% year over year, backed by solid demand during the quarter.

Segment Detail

Toll Brothers operates under two reportable segments, namely Traditional Home Building and Urban Infill ("City Living").

Revenues from Traditional Home Building totaled $2.15 billion, up 28.1% year over year, and that of City Living increased more than 594% to $184 million.

Inside the Headline Numbers

Home sales revenues grew 37% from the prior year to $2.23 billion. Homes delivered grew 28% year over year to 2,597 units. Deliveries increased in all regions served by the company. The average price of homes delivered was $806,600 for the quarter, up 1.7% from the year-ago level of $793,100.

The number of net signed contracts for the reported quarter was 3,154 units, up 11% year over year. The value of net signed contracts was $2.98 billion, reflecting a rise of 35% from the year-ago quarter. These marked record third-quarter numbers.

At fiscal third quarter-end, Toll Brothers had a backlog of 10,661 homes, representing a 47% year-over-year increase. Also, potential revenues from backlog improved 55% year over year to $9.44 billion. Backlog for the quarter, in both dollars and units, marked an all-time record high. The average price of homes in backlog totaled $885,200, up from $840,600 at the end of the comparable period of fiscal 2020.

Cancellation rate for the reported quarter was 3.1% compared with 8% in the prior-year period.

Margins

The company’s home sales adjusted gross margin was 25.6%, expanding 170 basis points (bps) for the quarter.

SG&A expenses — as a percentage of home sales revenues — were 10.5%, which decreased from 11.9% in the year-ago quarter.

Financials

Toll Brothers had $946 million cash and cash equivalents as of Jul 31, 2021 compared with $1.37 billion at fiscal 2020-end. At fiscal third quarter-end, it had $1.79 billion available under the $1.905-billion bank revolving credit facility, scheduled to mature in November 2025.

Total debt at fiscal third quarter-end was $3.59 billion, down from $3.96 billion at fiscal 2020-end. Debt to capital was 41.6% at fiscal third quarter-end versus 44.8% a year ago. During the quarter, the company repurchased nearly 1.7 million shares of its common stock at an average price of $57.66 per share for approximately $95.4 million.

Fiscal Fourth-Quarter Guidance

Toll Brothers expects home deliveries of 3,450 units (indicating a decline from 2,940 units delivered in the prior-year quarter) at an average price of $840,000 (suggesting a rise from $805,000 a year ago).

Adjusted home sales gross margin is now expected to be 25.6% (up from prior projection of 24.8), implying an increase from 21.9% in the year-ago period. SG&A expenses are estimated to be 9.8% of home sales revenues (pointing to growth from 9.9% a year ago). The projection has improved from prior expectation of 11.6%. The company expects effective tax rate to be 26%.

Fiscal 2021 Guidance

For fiscal 2021, home deliveries are now anticipated to be 10,100 units (indicating an improvement from 8,496 units reported in fiscal 2020) at an average price of $830,000. Average price in the year-ago quarter was $816,500.

Toll Brothers expects adjusted home sales gross margin of 24.9% (reflecting a marginal increase from 24.6% projected earlier). The current projection implies growth from 23.5% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2021 are projected to be 11.3% (suggesting fall from 12.5% in fiscal 2020). The current estimate reflects a decrease from the prior projection of 11.8%.

Zacks Rank

Toll Brothers  — which shares space with Lennar Corporation (LEN - Free Report) , D.R. Horton, Inc. (DHI - Free Report) and PulteGroup, Inc. (PHM - Free Report) in the Zacks Building Products - Home Builders industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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