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Toll Brothers (TOL) to Post Q3 Earnings: What to Expect?

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Toll Brothers, Inc. (TOL - Free Report) is scheduled to report third-quarter fiscal 2023 (ended Jul 31, 2023) results on Aug 22, after the closing bell.

In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate by 50.8% and 21.3%, respectively. Earnings increased 54.1% and revenues grew 10.1% from the prior-year period.

On an encouraging note, earnings topped analysts’ expectations in 21 of the 22 trailing quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the fiscal third-quarter earnings per share (EPS) has remained unchanged at $2.86 over the past 60 days. The said figure indicates a 21.7% rise from the year-ago EPS of $2.35. The consensus mark for revenues is pegged at $2.47 billion, suggesting a 1% year-over-year decrease.

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 Note

Toll Brothers’ fiscal third-quarter home sales are expected to have decreased from the year-ago reported level despite higher pricing due to ongoing challenges in the industry comprising a softer demand environment. The increase in mortgage rates since March 2022, along with uncertain macroeconomic conditions, has been playing the spoilsport.

Nonetheless, low-existing homes for sale have been driving demand for new homes in the market. Although this tailwind is likely to have helped the company to post higher revenues in the quarter, rising mortgage rates are headwinds.

Moreover, apart from the lack of available supply, its focus on luxury move-up buyers, who already possess a residence and are looking to shift to larger and better homes, will somewhat contribute to the revenues. Toll Brothers has been enjoying greater pricing power than other homebuilding companies, as homebuyers are less sensitive to price changes. The company has also been benefiting from the strategy of broadening its product lines, price points and geographies, along with spec sales.

On the fiscal second-quarter earnings call, TOL stated that it expects 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). Our model predicts home sales revenues to grow 7.7% year over year to $2.43 billion.

Unprecedented supply-chain issues, increased inflation, and higher land, labor and raw material costs are expected to have put pressure on the fiscal third-quarter margins. That said, the company has been tightening its costs, which are expected to have got reflected in its quarterly results.

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

Estimates

Our model predicts a backlog of 7,218 units, indicating a decline from 10,725 homes reported a year ago. The same for the backlog (in values) is pegged at $8,202.2 million, implying a decline from the $11,706.2 million recorded at the third quarter of fiscal 2022-end. We expect net signed contracts to be around 2,049 units. This indicates an improvement from the prior-year reported figure of 1,266 units.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Toll Brothers this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here, as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Recent Construction Releases

Quanta Services Inc. (PWR - Free Report) reported mixed results for second-quarter 2023, wherein adjusted earnings missed the Zacks Consensus Estimate but revenues surpassed the same. Both metrics were up on a year-over-year basis.

Quanta continues to experience high demand for its infrastructure solutions that support energy transition initiatives and increase reliability, safety and efficiency. Project activity associated with renewable generation has been going strong and is expected to continue throughout the year.

KBR, Inc. (KBR - Free Report) reported mixed second-quarter 2023 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Earnings beat the consensus estimate for the seventh straight quarter. Revenues, on the other hand, surpassed the mark in three of the trailing seven quarters and missed on other four occasions.

Although KBR’s quarterly earnings were impacted by losses related to convertible notes and a legacy legal matter, the company delivered a strong quarter of financial performance and environmental, social and governance or ESG performance, underpinned by its mission focus and operational discipline.

Fluor Corporation (FLR - Free Report) reported stellar results for second-quarter 2023, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate and increased from the previous year, given solid demand for its engineering and construction solutions.

Given the strong underlying performance of the company’s non-legacy portfolio and large Energy Solutions projects, Fluor lifted its expectations for 2023.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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