Toll Brothers Inc. (NYSE: NYSE:TOL) concluded its fiscal year 2023 on a robust note, with a marked 72% surge in signed contracts and home sales revenues reaching $2.95 billion in the fourth quarter. CEO Douglas Yearley highlighted the company's successful strategies and financial health, including a substantial increase in home deliveries and record homebuilding revenues of $9.9 billion for the year. With a solid financial foundation, including $3 billion in liquidity and a significant reduction in senior debt, Toll Brothers is poised for growth, aiming for a 10% increase in community count and planning a $400 million common stock repurchase in fiscal 2024.
Key Takeaways
- Toll Brothers delivered 2,755 homes in Q4, generating $2.95 billion in sales, and 9,597 homes for the full year.
- The company's adjusted gross margin surpassed guidance at 29.1%.
- Fiscal 2024 is set to see a 10% increase in community count and a $400 million stock repurchase.
- Strong cash flow from operations at $1.3 billion, with $3 billion in liquidity.
- Land acquisition and development saw an investment of $2.3 billion.
- Shareholders received $653 million through repurchases and dividends.
- The company reduced senior debt by $400 million and maintained a net debt to capital ratio of 17.7%.
- Projected earnings per share for fiscal 2024 stand at approximately $12 to $12.50.
Company Outlook
Toll Brothers anticipates a promising fiscal year 2024, with projections to increase its community count by 10%, aiming to reach 410 operating communities by year-end. The company has set ambitious targets for new-home deliveries and average prices, expecting an adjusted gross margin of 28% in Q1 and approximately 27.9% for the full year. Despite concerns over rising mortgage rates, Yearley's optimism is grounded in the company's record revenues and improved margins.
Bearish Highlights
The company does not foresee a significant rise in inventory balance, maintaining a cautious approach amidst market volatility. With increased costs of land banking, Toll Brothers is experiencing fewer land options, potentially impacting future expansion. They also expect a $10 million loss in other income for Q1, although a full-year gain of $125 million is projected.
Bullish Highlights
Despite lower gross margins for spec homes, Toll Brothers is satisfied with the overall profitability, which is bolstered by higher margins from build-to-order homes. The company's strategy of building spec homes has proven effective, catering to a broader market. The increase in conforming loan limits for Fannie Mae and Freddie Mac mortgages is also seen as a positive development for the business.
Misses
The company acknowledges that spec homes sell for about $200,000 less than build-to-order homes, and carry a gross margin that is 250 basis points lower. Additionally, the anticipation of lower third-party commissions suggests a potential decline in future revenue from this source.
Q&A Highlights
Management discussed the impact of mortgage rates on their business, noting that a drop in rates would likely bolster sales. They have adapted to changing conditions, selling houses at higher rates, and are prepared to capitalize on further rate drops. The company emphasized their focus on capital efficiency and improving internal rate of return (IRR) and return on equity (ROE), critical metrics for financial health and investor confidence.
In conclusion, Toll Brothers' earnings call reflected a company that is navigating the complexities of the housing market with strategic foresight. The management's confidence in their business model and financial strategies suggests a positive trajectory for the upcoming fiscal year, despite the challenges posed by external economic factors.
InvestingPro Insights
Toll Brothers Inc. (NYSE: TOL) has demonstrated remarkable financial resilience and growth potential, as reflected in the latest data from InvestingPro. With a market capitalization of approximately $9.8 billion USD, the company's performance is underscored by an attractive P/E ratio of 7.19, which further dips to 6.91 when adjusted for the last twelve months as of Q4 2023. This indicates that the company is trading at a low earnings multiple, potentially offering a value opportunity for investors.
InvestingPro Tips highlight Toll Brothers' ability to yield a high return on invested capital and maintain strong earnings, which supports management's capacity to continue dividend payments. The company has raised its dividend for three consecutive years, showcasing its commitment to shareholder returns. In addition, it operates with a high return on assets, emphasizing its efficient use of capital.
For investors considering adding Toll Brothers to their portfolio, it's noteworthy that the company's stockholders receive high returns on book equity. These financial strengths are part of the reason why InvestingPro lists 19 additional tips that can provide deeper insights into the company's performance and outlook.
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InvestingPro's real-time metrics and tips offer valuable perspectives that align with the company's positive trajectory as discussed in the article. Toll Brothers' strategic financial management and promising outlook make it a company worth watching in the dynamic housing market.
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