It has been about a month since the last earnings report for Toll Brothers Inc. (TOL - Free Report) . Shares have added about 6.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Toll Brothers Tops Q3 Earnings, Updates 2017 View
Toll Brothers, Inc., the nation’s leading luxury homes builder, reported adjusted earnings of 87 cents per share in the third quarter of fiscal 2017, comfortably beating the Zacks Consensus Estimate of 68 cents by 27.9%. Earnings also increased 42.6% year over year.
The company reported revenues of $1.5 billion in the fiscal third quarter, surpassing the consensus mark of $1.48 billion by 1.5%. Revenues were up 18% year over year.
Toll Brothers operates under two segments – Traditional Home Building and Urban Infill ("City Living").
Traditional Home Building revenues during the quarter totaled $1.4 billion, up 15.3% year over year, while Urban Infill revenues of $98.7 million increased 88%, courtesy of a higher number of homes delivered.
Inside the Headline Numbers
Consolidated homebuilding deliveries rose 26% year over year to 1,899 units in the third quarter of fiscal 2017. Deliveries increased across all the regions, i.e., North, Mid-Atlantic, South and West. However, California registered 4% decline in deliveries.
Average price of homes delivered was $791,400 in the quarter, down 6.1% year over year due to changes in the mix.
The number of net signed contracts was 2,163 units in the quarter, up 24% year over year. Value of net signed contracts during the quarter was $1.81 billion, reflecting an increase of 25% year over year. This marks the 12th consecutive quarter of year-over-year growth in contracts.
At the end of the fiscal third quarter, Toll Brothers had a backlog of 6,282 homes, up 21% year over year. Potential housing revenues from backlog grew 21% year over year to $5.31 billion. The average price of backlog was $845,100 in the third quarter compared with $844,300 in the prior-year quarter.
The company’s homebuilding adjusted gross margin declined 30 basis points (bps) to 25% in the quarter under review.
As a percentage of revenues, SG&A expenses contracted 30 bps to 10.3% from 10.6% in the third quarter of fiscal 2016.
Toll Brothers had $946.2 million in cash as on Jul 31, 2017 compared with $633.7 million as on Oct 31, 2016.
During the third quarter, Toll Brothers repurchased approximately 1.9 million shares of its common stock at an average price of $39.02 per share for a total purchase price of approximately $75.3 million.
The company expects home deliveries between 2,275 and 2,575 units at an average price of $840,000 to $860,000.
Adjusted gross margin in the quarter is expected to improve by 35-50 bps year over year.
Third-quarter fiscal 2017 SG&A expenses are estimated at approximately 8% of revenues. Effective tax rate is expected to be approximately 38%.
Fiscal 2017 Outlook
For fiscal 2017, home deliveries are anticipated in the range of 7,000 to 7,300 units (previously 6,950-7,450) at an average price of $800,000-$825,000.
Revenues are projected between $5.6 billion and $6 billion (previously $5.4-$6.1 billion) for fiscal 2017, compared with $5.17 billion in fiscal 2016.
Toll Brothers expects its adjusted gross margin in the range of 24.8-25% (previously 24.8-25.3%) band for fiscal 2017. SG&A expenses are estimated at approximately 10.4% of revenues.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 6.7% due to these changes.
At this time, Toll Brothers' stock has an average Growth Score of C, however its Momentum is doing a bit better with a B. The stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.