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Toll Brothers (TOL) Q1 Earnings & Revenues Top, Margins Grow

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Toll Brothers, Inc.’s (TOL - Free Report) shares gained more than 3% in the after-hour trading session, following its first-quarter fiscal 2019 earnings release. The company’s earnings and revenues topped the Zacks Consensus Estimate, given strong revenue growth and gross margins, along with improved SG&A leverage.

Management believes that Toll Brothers remains well positioned to take advantage of the robust economy, improving demographics and financial health of its affluent customer base.

Earnings & Revenues

The country’s leading luxury homebuilder reported earnings of 76 cents per share in the fiscal first quarter, beating the Zacks Consensus Estimate of 63 cents by 20.6%. However, the reported figure fell 8.4% from the year-ago profit level of 83 cents as a result of higher effective tax rate.  

The company reported revenues of $1.36 billion in the quarter, beating the consensus mark of $1.28 billion. The reported figure also increased 16% year over year, reflecting higher home sales revenues, deliveries and pricing.

Segment Detail

Toll Brothers operates under two segments, namely Traditional Home Building and Urban Infill ("City Living").

Revenues from Traditional Home Building were up 18.5% year over year to $1.25 billion, while the same from City Living decreased to $68.6 million during the quarter from $117.6 million a year ago.

Inside the Headline Numbers

Consolidated homebuilding deliveries in the quarter increased 12% to 1,530 units and 8% year over year in dollars. Deliveries increased across all the regions, i.e., North, South, West and California, barring Mid-Atlantic. Deliveries at Citi Living were flat from the prior-year quarter at 64 units.

The average price of homes delivered was $862,300 in the quarter, up 4.4% from the year-ago level of $826,000.

The number of net signed contracts was 1,379 units in the quarter, down 24% year over year. The value of net signed contracts was $1.16 billion, reflecting a decrease of 31% 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 declined 4% year over year to $5.37 billion. The average price of backlog was $901,000, up 1% from $892,000 in the prior-year quarter.

Margins

The company’s home sales adjusted gross margin expanded 50 basis points (bps) to 24.2% in the quarter under review.

As a percentage of revenues, SG&A expenses improved 110 bps to 12.3% in the quarter.

Operating margin of 9.1% grew 200 bps in the quarter.

Financials

Toll Brothers had $801.7 million in cash as of Jan 31, 2019 compared with $1.18 billion at fiscal 2018-end.

During fiscal first quarter, the company repurchased 785,000 shares, at average price of $32.02 per share, for a total purchase price of approximately $25.1 million.

Fiscal Second-Quarter 2019 Guidance

The company expects home deliveries between 1,650 units and 1,850 units (versus 1,886 units delivered in the prior-year quarter) at average price of $860,000-$890,000 (versus $847,900 a year ago).

Adjusted gross margin in the quarter is expected to be approximately 23.1% compared with 18.8% in the year-ago period.

SG&A expenses are estimated to be approximately 11.3% of revenues (compared with 10.4% a year ago).

Zacks Rank & Stocks to Consider

Currently, Toll Brothers carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Construction sector include Altair Engineering Inc. (ALTR - Free Report) , Jacobs Engineering Group Inc. and Frontdoor, Inc. (FTDR - Free Report) , each carrying a Zacks Rank #2 (Buy).

Altair Engineering, Jacobs and Frontdoor’s earnings for the current year are expected to grow 69.8%, 13.4% and 10.5%, respectively.

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