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Toll Brothers (TOL) Q2 Earnings & Revenues Top, Shares Up

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Toll Brothers, Inc. (TOL - Free Report) reported impressive results in second-quarter fiscal 2022 (ended Apr 30, 2022). Both top and bottom line topped the Zacks Consensus Estimate and increased on a year-over-year basis.

Shares of this leading luxury homebuilder climbed 6.6% in the after-hour trading session on May 24, following the release.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “While demand is still solid, over the past month it has moderated from the unprecedented pace of the past two years as buyers adapt to higher mortgage rates and other macro-economic conditions. However, the many fundamental drivers of housing demand remain firmly in place. These include favorable demographics, the significant imbalance between the supply and demand for homes, and migration trends. We believe these factors will support a healthy housing market over the long term.”

Earnings & Revenue Discussion

This Fort Washington, PA-based homebuilder reported earnings of $1.85 per share, which handiliy beat the Zacks Consensus Estimate of $1.46 by 26.7% and increased a whopping 83.2% from the year-ago period.

Total revenues (including Home sales, and Land sales and other) came in at $2.28 billion, which beat the consensus mark of $2.05 billion by 11.1% and rose 18% year over year. The uptrend was backed by higher deliveries and pricing during the quarter.

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 $2.17 billion, up 22% year over year and that of City Living decreased 69% to $18 million.

Inside the Headline Numbers

Home sales revenues grew 19.1% from the prior-year quarter to $2.19 billion. Homes delivered grew 6% year over year to 2,407 units. Deliveries increased in South, Mountain and Pacific regions served by the company. The average price of homes delivered was $908,400 for the quarter, up from the year-ago level of $808,600.

The number of net signed contracts for the reported quarter was 2,874 units, down 17.6% year over year. The value of net signed contracts was $3.1 billion, reflecting a rise of 1% from the year-ago quarter.

At fiscal second-quarter end, Toll Brothers had a backlog of 11,768 homes, representing a 16% year-over-year increase. Also, potential revenues from backlog improved 35% year over year to $11.7 billion. The average price of homes in backlog totaled $994,700, up from $860,100 at the end of second-quarter fiscal 2021.

Cancellation rate (as a percentage of signed contracts) for the reported quarter was 3.8% compared with 4% in the prior-year period.

Margins

The company’s adjusted home sales gross margin was 26.1%, expanding 170 basis points for the quarter. SG&A expenses — as a percentage of home sales revenues — were 11.1%, which decreased from 11.9% in the year-ago quarter.

Financials

Toll Brothers had cash and cash equivalents of $535 million at fiscal second-quarter end compared with $1.64 billion at fiscal 2021-end. At fiscal second-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 second-quarter end was $3.30 billion, down from $3.56 billion at fiscal 2021-end but up from $3.24 billion at fiscal first-quarter end. Debt to capital was 38.1% at fiscal second-quarter end versus 40.2% at fiscal 2021-end. During the quarter, the company repurchased 2.2 million shares of its common stock at an average price of $48.30 per share for approximately $106.5 million.

Fiscal Third-Quarter Guidance

Toll Brothers expects home deliveries of 2,750 units (indicating a rise from 2,597 units delivered in the prior-year quarter) at an average price of $895,000-$915,000 (suggesting a rise from $860,400 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 10.5% 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 11,000-11,500 units (versus 11,250-12,000 units expected earlier) at an average price of $890,000-$910,000 (versus $875,000-$895,000 of earlier projection). 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 fiscal 2022 are projected to be 10.4% versus 10.5% projected earlier. The expected figure indicates a fall from 10.9% reported in fiscal 2021.

Zacks Rank & Key Picks

Toll Brothers currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Better-ranked stocks, which warrant a look in the Construction sector, include Patrick Industries (PATK - Free Report) , Beazer Homes USA (BZH - Free Report) and NVR, Inc. (NVR - Free Report) .

Patrick Industries — sporitng a Zacks Rank #1 — is a leading component solutions provider for the RV, marine, and manufactured housing industries. Patrick Industries, like many others in the broader RV and consumer marine space, is witnessing a massive run for revenue growth that began about a decade ago.

Patrick Industries’ expected earnings growth rate for 2022 is 36.7%. The Zacks Consensus Estimate for current-year earnings has improved 19.7% over the past 30 days.

Beazer Homes, carrying a Zacks Rank #2 (Buy), designs, builds and sells single-family homes. BZH designs homes to appeal primarily to entry-level and first move-up homebuyers. Beazer Homes USA’s objective is to provide customers with homes that have quality and value. BZH’s subsidiary, Beazer Mortgage, originates the mortgages for the company's homebuyers.

Beazer Homes’ expected earnings growth rate for fiscal 2022 is 48.9%. The Zacks Consensus Estimate for current-year earnings has improved 14.6% over the past 30 days.

NVR, also carrying a Zacks Rank #2, is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. In order to serve homebuilding customers, NVR operates a mortgage banking and title services business. NVR operates in two business segments: Homebuilding and Mortgage Banking.

NVR’s expected earnings growth rate for the current year is 68.4%. The Zacks Consensus Estimate for current-year earnings has improved 20.4% over the past 30 days.

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