Toll Brothers (TOL) Q1 Earnings Top, Updates 2018 View

Shares of Toll Brothers, Inc. (NYSE:TOL) declined more than 5% on Feb 27 after it announced first-quarter fiscal 2018 results, despite reporting better-than-expected earnings.

The country’s leading luxury homes builder reported adjusted earnings of 63 cents per share in the first quarter of fiscal 2018, beating the Zacks Consensus Estimate of 54 cents. The homebuilder’s adjusted earnings got a 50% boost from the year-ago profit level of 42 cents per share.

Toll Brothers reported fiscal first-quarter earnings per share of 83 cents, which included 20 cents per share of non-cash tax benefit from a revaluation of deferred tax liabilities following the passage of new tax legislation.

The company reported revenues of $1,175.5 million in the fiscal first quarter, missing the consensus mark of $1,179 million. Revenues, however, increased 28% year over year.

Although the company exhibited robust quarterly results, investors reacted negatively, mirroring concerns to home sales prices that were “slightly” lower than what the company had expected and weak fiscal second-quarter adjusted gross margin guidance.

Segment Detail

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

Traditional Home Building revenues during the quarter totaled $1,057.9 million, down 17.2% year over year, while Urban Infill revenues of $117.6 million increased significantly from $17.9 million a year ago, courtesy of higher number of homes delivered.

Inside the Headline Numbers

Consolidated homebuilding deliveries increased 20% year over year to 1,423 units in the quarter. Deliveries increased across all the regions (baring North), i.e., Mid-Atlantic, South, West, California and City Living. Deliveries at the North remain at par with the year-ago level.

Average price of homes delivered was $826,000 in the quarter, up 6.8% from the year-ago level of $773,700.

The number of net signed contracts was 1,822 units in the quarter, up 20% year over year. Value of net signed contracts during the quarter was $1.69 billion, reflecting an increase of 36% from the year-ago quarter. This marks the 14th consecutive quarter of year-over-year growth in contracts.

At the end of fiscal first quarter, Toll Brothers had a backlog of 6,250 homes, up 21% from the prior-year quarter. Potential housing revenues from backlog grew 28% year over year to $5.58 billion. The average price of backlog was $892,200 compared with $844,500 in the prior-year quarter.

The company’s homebuilding adjusted gross margin contracted 20 basis points (bps) to 23.7% in the quarter under review.

As a percentage of revenues, SG&A expenses decreased 150 bps to 13.4% in the quarter.

Toll Brothers Inc. Price, Consensus and EPS Surprise

Toll Brothers Inc. Price, Consensus and EPS Surprise | Toll Brothers Inc. Quote

Financials

Toll Brothers had $508.3 million in cash as of Jan 31, 2018 compared with $712.8 million as of Oct 31, 2017.

During the fiscal first quarter, Toll Brothers repurchased approximately 4.4 million shares of common stock at an average price of $47.43 per share for a total purchase price of approximately $210 million.

Fiscal Second-Quarter Guidance

The company expects home deliveries between 1,825 and 1,925 units at an average price of $825,000 to $850,000.

Adjusted gross margin in the quarter is expected to be approximately 22.8%, implying a decline of 90 bps sequentially and 150 bps year over year.

SG&A expenses are estimated at approximately 10.6% of revenues.

Fiscal 2018 Guidance

Home deliveries are now anticipated in the range of 7,800-8,600 units (versus 7,700-8,700 units expected earlier) at an average price of $820,000-$860,000 (versus $810,000-$860,000 expected earlier).

The company has tightened its revenue guidance to $6.4-$7.4 billion from $6.24 billion and $7.48 billion. In fiscal 2017, the company had reported revenues of $5.81 billion.

Toll Brothers reaffirmed adjusted gross margin in the range of 23.75-24.25% compared with 24.8% in fiscal 2017. SG&A expenses are estimated at approximately 10% of revenues.

Zacks Rank & Peer Releases

Toll Brothers carries a Zacks Rank #2 (Buy).

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