Toll Brothers, Inc.’s (NYSE:TOL) shares dropped 1.5% in the pre-market trading session, following its fourth quarter of fiscal 2018 earnings release. Although the company’s earnings and revenues topped the Zacks Consensus Estimate, a drop in fourth-quarter orders, owing to ongoing housing market headwinds of rising interest rates and higher home prices, might have hurt investors’ sentiments.
Nonetheless, 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 homes builder 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).
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.
A Look at Peer Releases
NVR (NYSE:NVR) , one of the leading homebuilding and mortgage banking companies in the United States, reported third-quarter 2018 earnings of $48.28 per share, beating the Zacks Consensus Estimate of $47.64 by 1.3%. Also, earnings increased 27% from the prior-year quarter, primarily owing to a reduction in effective tax rate.
D.R. Horton, Inc.’s (NYSE:DHI) fourth quarter of fiscal 2018 earnings came in at $1.22 per share, missing the Zacks Consensus Estimate by a penny. Nevertheless, the reported figure surged 49% from the year-ago profit level of 82 cents.
PulteGroup Inc. (NYSE:PHM) reported impressive third-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate. Moreover, the company’s top and bottom lines grew considerably, courtesy of higher revenues and margin improvement.
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