A month has gone by since the last earnings report for Toll Brothers (TOL - Free Report) . Shares have added about 1.4% 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 drivers.
Toll Brothers Q4 Earnings & Revenues Beat, Order Falls
Toll Brothers reported earnings of $2.08 per share in the fiscal fourth quarter, beating the Zacks Consensus Estimate of $1.82 by 14.3%. The reported figure also grew 78% from the year-ago profit level of $1.17.
The company reported revenues of $2.46 billion in the quarter, beating the consensus mark of $2.33 billion. The reported figure also increased by an impressive 21% year over year, reflecting higher deliveries and pricing.
Toll Brothers operates under two segments, namely Traditional Home Building and Urban Infill ("City Living").
Traditional Home Building revenues during the quarter totaled $2.39 billion, up 30.2% year over year, while City Living revenues of $63.1 million decreased from $190 million a year ago.
Inside the Headline Numbers
Consolidated homebuilding deliveries increased 12% year over year to 2,710 units in the quarter. Deliveries increased (barring Citi Living) across all the regions, i.e., North, Mid-Atlantic, South, West, California. Deliveries at Citi Living were down 68% from the year-ago level.
The average price of homes delivered was $906,000 in the quarter, up 8.3% from the year-ago level of $836,600.
The number of net signed contracts was 1,715 units in the quarter, down 13% year over year. The value of net signed contracts was $1.5 billion, reflecting a decrease of 15% from the year-ago quarter.
At the end of fiscal 2018, Toll Brothers had a backlog of 6,105 homes, up 4% from the prior-year quarter. Potential housing revenues from backlog grew 9% year over year to $5.52 billion. The average price of backlog was $904,600, up 4.6% from $865,100 in the prior-year quarter.
The company’s homebuilding adjusted gross margin contracted 120 basis points (bps) to 24.1% in the quarter under review. The downside was due to higher input costs.
As a percentage of revenues, SG&A expenses improved 60 bps to 7.6% in the quarter.
Operating margin of 13.8% contracted 20 bps in the quarter.
Toll Brothers had $1.18 billion in cash as of Oct 31, 2018 compared with $712.8 million on Oct 31, 2017.
During fiscal 2018, the company repurchased roughly 12.1 million shares of common stock at an average price of $41.56 per share, for a total purchase price of approximately $503.2 million.
Fiscal 2018 Highlights
The company’s total revenues increased 23% year over to $7.14 billion. Deliveries were 8,265 units, up 16% from a year ago. Earnings came in at $4.85 per share, up 53% year over year.
Fiscal First-Quarter 2019 Guidance
The company expects home deliveries between 1,350 units and 1,550 units (versus 1,423 units delivered in the prior-year quarter) at average price of $850,000-$880,000 (versus $826,000 a year ago).
Adjusted gross margin in the quarter is expected to be approximately 23.5% compared with 23.7% in the year-ago quarter.
SG&A expenses are estimated at approximately 13.1% of the revenues (compared with 13.4% a year ago).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.22% due to these changes.
Currently, Toll Brothers has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Toll Brothers has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.