Back to top

Image: Bigstock

Toll Brothers' (TOL) Shares Fall Despite Q2 Earnings Beat

Read MoreHide Full Article

Toll Brothers, Inc.’s (TOL - Free Report) shares declined more than 3% in the after-hour trading session, following second-quarter fiscal 2019 earnings release. Although the company’s earnings and revenues topped the Zacks Consensus Estimate and increased on a year-over-year basis, its fiscal third-quarter guidance looks soft.

Management predicts slower demand, higher incentives associated with challenging weather and changes in mix to impact fiscal 2019 results.

Toll Brothers Inc. Price, Consensus and EPS Surprise

Earnings & Revenue Discussion

The country’s leading luxury homebuilder reported earnings of 87 cents per share during the reported quarter, surpassing the Zacks Consensus Estimate of 77 cents by 13%. Also, the said figure grew 10.1% from the year-ago figure of 79 cents as a result of improved margins.

Consolidated revenues of $1.72 billion topped the consensus mark of $1.54 billion by 11.4%. The reported figure also increased 7.3% year over year, backed by improvement in demand during the quarter.

Segment Detail

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

Revenues from Traditional Home Building totaled $1.63 billion, up 7.8% year over year, while that of City Living decreased 6.1% to $84.1 million during the quarter.

Inside the Headline Numbers

Consolidated homebuilding revenues increased 7% to $1.71 billion year over year. Homebuilding deliveries during the quarter grew 1% year over year to 1,911 units and 7% in dollars. Deliveries decreased in all the regions served by the company except South. The decline was fully offset by a year-over-year increase in deliveries in Citi Living to 72 units.

The average price of homes delivered was $895,900 in the quarter, up 5.7% from the year-ago level of $847,900.

The number of net signed contracts during the reported quarter was 2,424 units, down 9% year over year. The value of net signed contracts was $2 billion, reflecting a decrease of 16% from the year-ago quarter.

At the end of the fiscal second quarter, Toll Brothers had a backlog of 6,467 homes, representing an 8% year-over-year decline. Moreover, potential revenues from backlog declined 11% year over year to $5.66 billion. The average price of homes in backlog totaled $875,500, down from $904,800 at the end of the comparable period of fiscal 2018.

Cancellation rate during the reported quarter was 5.3% compared with 5.6% in the prior-year period.

Margins

The company’s home sales adjusted gross margin was 23.5%, expanding 100 basis points (bps) in the quarter.

SG&A expenses, as a percentage of home sales revenues, came in at 10.4%, in line with the year-ago quarter. Operating margin of 9.4% grew 100 bps in the quarter.

Financials

Toll Brothers had $924.4 million cash and cash equivalents as of Apr 30, 2019 compared with $1.18 billion at fiscal 2018-end.

During the fiscal second quarter, the company repurchased approximately 2,700 shares, at an average price of $36.95 per share, for a total purchase price of about $0.1 million.

Fiscal Third-Quarter Guidance

Toll Brothers expects home deliveries between 1,800 units and 2,000 units (below 2,246 units delivered in the prior-year quarter) at an average price of $855,000-$880,000 (versus $851,900 a year ago).

Adjusted home sales gross margin is expected to be approximately 22.5% compared with 24.3% in the year-ago period. SG&A expenses are estimated to be nearly 10.7% of home sales revenues (compared with 9.1% a year ago). The company expects effective tax rate to be 27.5%.

Fiscal 2019 Guidance

For full-year fiscal 2019, home deliveries are anticipated in the range of 7,700-8,100 units (versus 8,265 units reported in fiscal 2018) at an average price of $855,000-$880,000 (the year-ago figure was $864,300).

Toll Brothers expects adjusted home sales gross margin of about 23%, down from 23.7% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2019 are projected to be nearly 10.4% (compared with 9.6% in fiscal 2018).

Zacks Rank

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

Peer Releases

PulteGroup Inc.’s (PHM - Free Report) first-quarter 2019 earnings and revenues surpassed the respective Zacks Consensus Estimate. Earnings per share came in at 59 cents, beating the consensus mark of 47 cents by 25.5%. The bottom line was in line with the year-ago figure. Total revenues of $1.99 billion outpaced the consensus mark and the year-ago figure of $1.97 billion.

KB Home’s (KBH - Free Report) first-quarter fiscal 2019 earnings of 31 cents per share outpaced the Zacks Consensus Estimate of 27 cents by 14.8%. Total revenues of $811.5 million, however, missed the consensus mark of $829.3 million.

Lennar Corporation (LEN - Free Report) reported first-quarter fiscal 2019 (ended Feb 28, 2019) results, wherein earnings and revenues missed the respective Zacks Consensus Estimate by 1.3% and 5.3%.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


PulteGroup, Inc. (PHM) - free report >>

Toll Brothers Inc. (TOL) - free report >>

KB Home (KBH) - free report >>

Lennar Corporation (LEN) - free report >>

Published in