A month has gone by since the last earnings report for Toll Brothers (TOL Quick QuoteTOL - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Toll Brothers due for a breakout? 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 Q3 Earnings Beat, FY23 Guidance Raised

Toll Brothers reported an impressive third-quarter fiscal 2023 (ended Jul 31, 2023). Its top and bottom lines surpassed the Zacks Consensus Estimate and increased impressively on a year-over-year basis. The company outpaced its previously provided guidance for all the metrics amid ongoing challenges in the industry.

The company’s quarterly results reflected improved market demand on the back of historically low levels of resale inventory, favorable long-term demographic trends and the persistent underproduction of homes for more than a decade. This, combined with its policy of boosting its supply of spec homes and focus on operational efficiency, has helped the company deliver solid fiscal third-quarter results.

Earnings & Revenue Discussion

This Fort Washington, PA-based homebuilder delivered adjusted earnings of $3.73 per share, which beat the Zacks Consensus Estimate of $2.86 by 30.4% and increased by 58.7% from the year-ago period.

Total revenues (including Home sales and Land sales and others) came in at $2.69 billion, which beat the consensus mark of $2.47 billion by 8.8% and increased by 7.7% year over year.

Inside the Headlines

The company’s total home sales revenues grew 19% from the prior-year quarter to $2.67 billion. Homes delivered were up 4.6% year over year to 2,524 units. Deliveries increased across the South and Pacific geographic regions served by the company. The average price of homes delivered was $1,059,700 for the quarter, up from the year-ago level of $934,700. Net-signed contracts for the reported quarter was 2,245 units, up 77.3% year over year. The value of net signed contracts was $2.16 billion, reflecting a rise of 30.1%.

At the fiscal third-quarter end, Toll Brothers had a backlog of 7,295 homes, representing a year-over-year decrease of 32%. Potential revenues from backlog declined by 29.7% year over year to $7.87 billion. The average price of homes in the backlog totaled $1,079,500, up from $1,042,900 a year ago.

The cancelation rate (as a percentage of signed contracts) for the reported quarter was 9.8% compared with 13% in the prior-year period.

Margins

The company’s adjusted home sales gross margin was 29.3%, expanding 140 basis points (bps) for the quarter. SG&A expenses, as a percentage of home sales revenues, were 8.6%, which decreased 170 bps from the year-ago quarter.

Financials

Toll Brothers had cash and cash equivalents of $1,033.4 million at the end of third-quarter fiscal 2023 compared with $1,346.8 million at the fiscal 2022-end. At July 2023-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 third-quarter end was $2.83 billion, down from $3.33 billion at the fiscal 2022-end. Debt to capital was 29.7% at the fiscal third-quarter end, down from 35.7% at the fiscal 2022-end.

During the quarter, the company repurchased 1.9 million shares of its common stock at an average price of $76.26 per share, for approximately $147.3 million.

Fiscal Fourth-Quarter Guidance

Toll Brothers expect home deliveries of 2,650-2,750 units (indicating a decrease from 3,765 units delivered in the prior-year quarter) at an average price of $1,005,000-$1,025,000 (suggesting a rise from $951,100 a year ago). Adjusted home sales gross margin is expected to be 28.5%, implying a decline from 29% in the year-ago period. SG&A expenses are estimated to be 8.8% of home sales revenues, indicating a rise from 7.7% 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 9,500-9,600 units versus 8,900-9,500 units expected earlier. The estimated range reflects a decline from 10,515 units in fiscal 2022. The average price is expected to be $1,005,000-$1,015,000 versus an earlier projection of $975,000-$995,000. The estimated range reflects an increase from $923,600 reported in fiscal 2022.

Toll Brothers expects an adjusted home sales gross margin of 28.5% (versus 27.8% expected earlier) compared with 27.5% reported in fiscal 2022. SG&A expenses, as a percentage of home sales revenues, are projected to be 9.4% for fiscal 2023 versus an earlier expectation of 10%. In the year-ago period, the metric was 10.1%. The company expects the effective tax rate to be 25.4%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 11.95% due to these changes.

VGM Scores

Currently, Toll Brothers has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.