It has been about a month since the last earnings report for Toll Brothers (TOL Quick QuoteTOL - Free Report) . Shares have added about 17.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Toll Brothers’ (TOL Quick QuoteTOL - Free Report) Q2 Earnings & Revenues Beat Estimates

Toll Brothers, Inc.  reported second-quarter fiscal 2023 (ended Apr 30, 2023). Both the top and bottom lines topped the Zacks Consensus Estimate and the company delivered strong quarterly earnings and improved gross margin for the quarter despite the ongoing challenges in the industry.

The company’s quarterly results reflected stabilized mortgage rates and improved buyer confidence, resulting in higher demand for homes. This, combined with its policy of boosting its supply of spec homes into the spring selling season and focus on operational efficiency, has helped the company to deliver solid fiscal second-quarter results.

This recovering demand environment also helped the company to lift its guidance for fiscal 2023.

Earnings & Revenue Discussion

This Fort Washington, PA-based homebuilder reported adjusted earnings of $2.85 per share, which beat the Zacks Consensus Estimate of $1.89 by 50.9% and increased 54.1% from the year-ago period.

Total revenues (including Home sales and Land sales and others) came in at $2.5 billion, which beat the consensus mark of $2.07 billion by 21.3% and increased 10.1% year over year.

Inside the Headlines

The company’s total home sales revenues grew 13.9% from the prior-year quarter to $2.49 billion. Homes delivered were up 4% year over year to 2,492 units. Deliveries increased across South and Pacific geographic regions served by the company. The average price of homes delivered was $999,300 for the quarter, up from the year-ago level of $909,200.

The number of net signed contracts for the reported quarter was 2,333 units, down 18.8% year over year. The value of net signed contracts was $2.28 billion, reflecting a decrease of 26.4%.

At the fiscal second-quarter end, Toll Brothers had a backlog of 7,574 homes, representing a year-over-year decrease of 36%. Also, potential revenues from backlog declined 28% year over year to $8.4 billion. The average price of homes in backlog totaled $1,105,900, up from $994,700 a year ago.

The cancelation rate (as a percentage of signed contracts) for the reported quarter was 11.5% compared with 3.8% in the prior-year period.

Margins

The company’s adjusted home sales gross margin was 28.3%, expanding 220 basis points (bps) for the quarter. SG&A expenses — as a percentage of home sales revenues — were 9.1%, which decreased 200 bps from the year-ago quarter.

Financials

Toll Brothers had cash and cash equivalents of $761.9 million at the end of second-quarter fiscal 2023 compared with $1,346.8 million at the fiscal 2022-end. At the fiscal second-quarter end, it had $1.8 billion available under the $1.9 billion bank revolving credit facility, scheduled to mature in February 2028.

Total debt at the fiscal second-quarter end was $2.83 billion, down from $3.33 billion at the fiscal 2022-end. Debt to capital was 30.6% at the fiscal second-quarter end, down from 35.7% at the fiscal 2022-end. During the quarter, the company repurchased 1.4 million shares of its common stock at an average price of $58.14 per share for approximately $83.8 million.

During the quarter, the company hiked its quarterly cash dividend by 5% to 21 cents per share.

Fiscal Third-Quarter Guidance

Toll Brothers expects home deliveries of 2,350-2,450 units (indicating a decrease from 2,414 units delivered in the prior-year quarter) at an average price of $1,005,000-$1,025,000 (suggesting a rise from $934,700 a year ago).

Adjusted home sales gross margin is expected to be 27.7%, implying an increase from 26% in the year-ago period. SG&A expenses are estimated to be 9.7% of home sales revenues, indicating a decline from 10.3% in the year-ago period. The company expects the effective tax rate to be 26%.

Fiscal 2023 Guidance Raised

For fiscal 2023, home deliveries are now anticipated to be in the range of 8,900-9,500 units versus 8,000-9,000 units expected earlier. The estimated range reflects a decline from 10,515 units in fiscal 2022. The average price is expected to be $975,000-$995,000 versus an earlier projection of $965,000-$985,000. The estimated range reflects an increase from $923,600 reported in fiscal 2022.

Toll Brothers expects an adjusted home sales gross margin of 27.8% (versus 27% expected earlier) compared with 27.5% reported in fiscal 2022. SG&A expenses, as a percentage of home sales revenues, for fiscal 2023 are projected to be 10% versus 11% of earlier expectation. In the year-ago period, the metric was 10.1%. The company expects the effective tax rate to be 25.7%.

TOL expects earnings between $10 and $11 per diluted share for fiscal 2023, with a return on beginning equity approaching 20%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 31.55% due to these changes.

VGM Scores

At this time, 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 quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Toll Brothers has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.