A month has gone by since the last earnings report for Toll Brothers (TOL Quick QuoteTOL - Free Report) . Shares have added about 1.2% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Toll Brothers (TOL Quick QuoteTOL - Free Report) Q1 Earnings & Revenues Top, Margin Up

Toll Brothers, Inc.  reported impressive results for first-quarter fiscal 2022 (ended Jan 31, 2022). Both the top and bottom lines topped the Zacks Consensus Estimate as well as increased significantly on a year-over-year basis. The company has been benefiting from housing market momentum, which has been characterized by strong demographics, a substantial imbalance between tight supply of homes and continued pent-up demand, the growing equity in existing homes, migration trends, and the greater appreciation for home.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “Based on the good visibility that our backlog provides and the continued strength in the market, we are reaffirming all of our full year projections, including 20% growth in home sales revenues, an adjusted gross margin of approximately 27.5%, and a return on beginning equity of approximately 23%. In addition, we continue to expect to grow our community count by 10% by fiscal year end from the 340 communities we were operating at the end of FY 2021.”

Earnings & Revenue Discussion

This leading luxury homebuilder reported earnings of $1.24 per share, which surpassed the Zacks Consensus Estimate of $1.12 by 10.7% and increased a whopping 63.2% from the year-ago period. Total revenues (including Home sales, and Land sales and other) came in at $1.79 billion, which beat the consensus mark of $1.77 billion by 1.2% and rose 14.6% year over year. The uptrend was 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 $1.65 billion, up 17.6% year over year and that of City Living increased more than almost 410.3% to $39.8 million.

Inside the Headline Numbers

Home sales revenues grew 19.8% from the prior year to $1.69 billion. Homes delivered grew 8.6% year over year to 1,929 units. Deliveries increased in all regions served by the company (barring North). The average price of homes delivered was $874,700 for the quarter, up from the year-ago level of $793,900.

The number of net signed contracts for the reported quarter was 2,929 units, up 2% year over year. The value of net signed contracts was $3 billion, reflecting a rise of 19% from the year-ago quarter. At fiscal first quarter-end, Toll Brothers had a backlog of 11,302 homes, representing a 27% year-over-year increase. Also, potential revenues from backlog improved 45% year over year to $10.8 billion. The average price of homes in backlog totaled $956,000, up from $840,900 at the end of first-quarter fiscal 2021.

Cancellation rate for the reported quarter was 4.8% compared with 3.7% in the prior-year period.

Margins

The company’s adjusted home sales gross margin was 25.6%, expanding 270 basis points for the quarter. SG&A expenses — as a percentage of home sales revenues — were 13.4%, which decreased from 14.9% in the year-ago quarter.

Financials

Toll Brothers had cash and cash equivalents of $671.4 million at fiscal first quarter-end compared with $1.64 billion at fiscal 2021-end. At fiscal first quarter-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 fiscal first quarter-end was $3.24 billion, down from $3.56 billion at fiscal 2021-end. Debt to capital was 38.1% at fiscal first quarter-end versus 40.2% at fiscal 2021-end. During the quarter, the company repurchased 3 million shares of its common stock at an average price of $61.65 per share for approximately $185.8 million.

Fiscal Second-Quarter Guidance

Toll Brothers expects home deliveries of 2,350 units (indicating a rise from 2,271 units delivered in the prior-year quarter) at an average price of $865,000-$885,000 (suggesting a rise from $808,600 a year ago). Adjusted home sales gross margin is expected to be 25.5%, implying an increase from 21.9% in the year-ago period. SG&A expenses are estimated to be 11.9% of home sales revenues, indicating no change from the year-ago period. The company expects the effective tax rate to be 26%.

Fiscal 2022 Guidance

For fiscal 2022, home deliveries are anticipated to be 11,250-12,000 units at an average price of $875,000-$895,000. Toll Brothers expects adjusted home sales gross margin of 27.5% compared with 25% reported in fiscal 2021. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2022 are projected to be 10.5% (suggesting a fall from 10.9% in fiscal 2021).

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -16.99% due to these changes.

VGM Scores

Currently, Toll Brothers has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Toll Brothers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.