Toll Brothers, Inc.
), one of the country's leading luxury homebuilders, reported
earnings of 26 cents per diluted share in the third quarter of
fiscal 2012, up 24 cents from the prior-year quarter. The
year-over-year surge in earnings was driven by strong sales and
volume growth in the quarter.
Reported earnings surpassed the Zacks Consensus Estimate of 18
cents per diluted share for the third quarter of fiscal 2012.
The company reported revenue of $554.3 million in the third quarter
of fiscal 2012, up 41% year over year, driven by volume growth.
Reported revenue surpassed the Zacks Consensus Estimate of $505
The number of homes delivered increased to 963 units, up 39% year
over year due to a rise in demand and low competition for luxury
Net worth of the contracts signed during the quarter was $674.4
million, up 66% year over year. Contracts were signed for 1,119
units, up 57%. Contract growth was driven by the company's strong
brand name and attractive land positions.
The average price of net signed contracts was $576,000 in the third
quarter of fiscal 2012, up 1.2% year over year. The company had a
backlog of $1.62 billion (up 59%) and 2,559 units (up 44%).
The company's gross margin (excluding interest and write-downs)
grew 100 basis points to 24.4%, driven by better sales and volumes.
Its reported pre-tax income (excluding write-downs) was $46.1
million, up significantly from $24.1 million in third quarter of
The company entered into two joint ventures during the period. The
first was with Starwood Capital to build a luxury eco-friendly
hotel in the condominium community in Brooklyn Bridge Park on the
New York City East River. The company expects to complete the
project by spring of 2014.
The second was with Shea Baker Ranch LLC, a member of the Shea
family of companies (Shea), to develop Baker Ranch, a
master-planned community in Lake Forest, California. These
acquisitions will strengthen the company's position in the industry
by increasing the luxury quotient of homes in the most desirable
With the gradual economic recovery and relatively low interest
rates, customers who had been delaying purchases are coming back
stronger than expected. Since the existing inventory is inadequate
to meet this pent-up demand, there is a supply/demand imbalance.
The dearth of land for the construction of homes is also not
Therefore, home prices may be expected to increase. Toll
Brothers' strong brand name, wide range of products, attractive
land position, strong repute for reliability and quality and robust
liquidity position will help the company to maximize the
opportunities expected to come with market recovery.
Toll Brothers expects to deliver 800 to 1,000 homes in the fourth
quarter of 2012. The average price of homes is expected to be in
the range of $570,000 to $590,000, which is higher than the
previous guidance of $560,000 to $580,000. The company expects
margins to decline slightly in the fourth quarter of 2012 based on
an expected reduction in the number of deliveries, owing to lower
supply in the New York and New Jersey regions.
The company expects to generate home sale revenue between $1.71
billion and $1.84 billion in fiscal 2012. The company raised the
guidance for the number of homes delivered in fiscal 2012 to
between 3,000 and 3,200 from the previous expectation of 2,700 to
We currently have an Outperform recommendation on Toll Brothers.
The stock carries a Zacks #2 Rank (short-term 'Buy' rating).
TOLL BROTHERS (TOL): Free Stock Analysis Report
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We are positive about the company's order growth, stable margins
and improved pricing. We believe that the company has benefited
from its focus on high priced products, a segment of the housing
market that has seen growing demand and limited competition.