Toll Brothers Inc.
) reported adjusted earnings of 25 cents per share in the first
quarter of fiscal 2014, surpassing the Zacks Consensus Estimate
of 18 cents by 39%. Adjusted earnings increased significantly
from 3 cents in the prior-year quarter on the back of top-line
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The company reported revenues of $643.7 million in the first
quarter of fiscal 2014, up 52.0% year over year, driven by volume
growth and aggressive pricing. Reported revenues however lagged
the Zacks Consensus Estimate of $669 million by 3.8%. We believe
that the continued weakness in order may have led to the top line
Homebuilding Revenues and Orders
The number of homebuilding deliveries increased to 928 units in
the first quarter of fiscal 2014, up 24% year over year,
attributable to a rise in demand and low competition for luxury
homes. The average price of homes delivered was $694,000 in the
quarter, up 22% year over year. The company ended the quarter
with 238 selling communities, up 2.6% from the prior year
The number of net orders signed was 916 in the first quarter of
fiscal 2014, down 6% year over year. Value of net orders signed
during the quarter was $701.7 million, up 14% year over year. The
company has been witnessing weakness in orders for sometime as
the demand for luxury homes have slowed down and the company
faces strong comparision in the prior year quarter .
The company's backlog totaled 3,667 homes as of Jan 31, 2014, up
31% year over year. Potential housing revenues from backlog grew
45% year over year to $2.69 billion, primarily attributable to an
increase in prices of backlogs.
The company's homebuilding gross margin (excluding interest and
write-downs) grew 100 basis points (bps) to 24.4%, driven by
improved pricing and increased volume. However, margins were down
100 bps sequentially.
As a percentage of revenues, selling, general and administrative
expenses (excluding the impact of the Shapell acquisition)
improved 330 bps to 15.1% due to increased revenues in the
quarter. Operating margin improved 480 bps year over year to 4.9%
on the back of improved homebuilding gross margin and SG&A
Fiscal 2014 Outlook
Toll Brothers expects to deliver 5,100 to 5,850 homes in fiscal
2014 compared to the prior expectation of 5,100 to 6,100 homes.
The average price is expected to range between $675,000 and
$720,000 per home compared with the prior expectation of $670,000
and $720,000. The company expects fiscal 2014 gross margin to
improve 175 to 200 bps over 2013 levels. The company continues to
expect community count to remain between 250 and 290 in fiscal
Toll Brothers currently carries a Zacks Rank #3 (Hold). Investors
interested in the homebuilding sector can also consider stocks
William Lyon Homes
Taylor Morrison Home Corporation
). While William Lyon and Taylor Morrison sport a Zacks Rank #1
(Strong Buy), Lennar carries a Zacks Rank #2 (Buy).