By Arunima Banerjee
(Reuters) - U.S. luxury homebuilder Toll Brothers Inc (N:TOL) reported a first-quarter profit on Tuesday that beat analysts' estimates as it sold more homes at higher prices, easing some concerns about a slowdown in the housing industry.
Shares of the company, which builds homes that can cost upwards of $2 million, rose as much as 3.6 percent to $49.23 in morning trading.
The results come a day after Commerce Department data suggested a year-on-year drop in sales of new U.S. single-family homes in January, the first drop in five months.
Separately, mortgage application activity in the country fell as interest rates on 30-year fixed-rate home loans jumped to their highest in four years, the Mortgage Bankers Association said earlier this month.
Given these concerns, Toll Brothers' beat on most major metrics is expected to soothe some investor worries, MKM Partners analyst Megan McGrath said.
The Pennsylvania-based company said orders — a metric indicating future revenue for homebuilders — rose 19.7 percent to 1,822 homes in the reported quarter, boosted by growth in the Western United States, including California.
"The new home industry appears to be building momentum with the national home ownership rate rising over the past year," Executive Chairman Robert Toll said.
The company's average price of homes sold increased 6.8 percent to $826,000 in the reported quarter, while the number of homes sold surged 19.6 percent to 1,423 from a year earlier.
Toll Brothers raised the lower end of its full-year average price forecast to $820,000 from $810,000, keeping the high end at $860,000.
However, higher costs including labor and raw material expenses have weighed on margins in the sector.
Toll Brothers forecast adjusted gross margin of 22.8 percent for the second quarter, down from the 24.3 percent it reported a year earlier.
The company also tightened its full-year revenue outlook to between $6.40 billion and $7.40 billion, from $6.24 billion to $7.48 billion.
The company's net income rose 87.6 percent to $132.1 million, or 83 cents per share, partly benefiting from the U.S. tax reform. Excluding that, it earned 63 cents a share, beating average analysts' estimate of 61 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 27.7 percent to $1.18 billion, slightly falling short of estimates.
The company's earnings have missed estimates only twice in the last eight quarters while its revenue has missed estimates for the third straight quarter.