A month has gone by since the last earnings report for Toll Brothers (TOL - Free Report) . Shares have added about 4.2% 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 Top, Orders Rise
Toll Brothers, Inc.'s (Treported its fourth-quarter fiscal 2019 results, wherein earnings and revenues topped the respective Zacks Consensus Estimate. The company also remains optimistic about attaining higher deliveries in first-quarter fiscal 2020, courtesy of lower mortgage rates and a solid job market.
Earnings & Revenue Discussion
The country's leading luxury homebuilder reported earnings of $1.41 per share in the quarter under review, surpassing the Zacks Consensus Estimate of $1.29 by 9.3%. However, the said figure dropped 32.2% from the year-ago figure of $2.08 as a result of lower revenues and margins.
Consolidated revenues of $2.38 billion topped the consensus mark of $2.18 billion by 9.4%. The reported figure, however, decreased 3.1% year over year due to lower deliveries and average selling prices.
Toll Brothers operates under two reportable segments, namely Traditional Home Building and Urban Infill ("City Living").
Revenues from Traditional Home Building totaled $2.26 billion, down 5.4% year over year and that of City Living decreased 54.7% to $28.6 million during the quarter.
Inside the Headline Numbers
Consolidated homebuilding revenues decreased 6.6% year over year to $2.29 billion. Homebuilding deliveries during the quarter declined 1.4% year over year to 2,672 units. Deliveries decreased in all the regions served by the company, except South. Deliveries in Citi Living declined to 28 units from 47 units a year ago. The average price of homes delivered was $857,800 in the quarter, down 5.3% from the year-ago level of $906,000.
Nonetheless, the number of net signed contracts or orders during the reported quarter was 2,031 units, up 18.4% year over year. The value of net signed contracts was $1.68 billion, reflecting 11.8% increase from the year-ago quarter.
At the end of fiscal 2019, Toll Brothers had a backlog of 6,266 homes, representing a 2.6% year-over-year increase. However, potential revenues from backlog declined 4.8% year over year to $5.26 billion owing to a 7.3% decline in average price of homes in backlog. Cancellation rate during the reported quarter was 8.9%, reflecting a decline from 9.3% in the prior-year period.
The company's home sales adjusted gross margin was 21.9%, contracting 220 basis points (bps) in the quarter. SG&A expenses — as a percentage of home sales revenues — were 9%, up 140 bps from the year-ago quarter. Operating margin of 9.5% was down 430 bps in the quarter.
Toll Brothers had $1.29 billion cash and cash equivalents as of Oct 31, 2019 compared with $1.18 billion at fiscal 2018-end.
During fiscal 2019, the company repurchased 6.6 million shares, at an average price of $35.28 per share, for a total purchase price of $233.5 million.
Fiscal 2019 Highlights
Earnings per share came in at $4.03 in the fiscal year, down 16.9% year over year. Nonetheless, consolidated revenues of $7.22 billion were up 1.1% from a year ago. Homebuilding revenues were down 0.9% year over year to $7.08 billion.
Net signed contracts of $6.71 billion and 8,075 units were down 12% in dollars and 5% in units compared with $7.60 billion and 8,519 units in fiscal 2018.
First-Quarter Fiscal 2020 Guidance
For the quarter, home deliveries are anticipated in the range of 1,650-1,850 units (indicating an increase from 1,530 units reported in the year-ago period) at an average price of $800,000-$820,000 (suggesting a decrease from the year-ago figure of $862,300).
Toll Brothers expects adjusted home sales gross margin of 21.3%, implying a decline from 24.2% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, for the quarter are projected at 13.5% (indicating an increase from 12.3% in the year-ago period).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -32.32% due to these changes.
At this time, Toll Brothers has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 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.
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.