Will Toll Brothers (TOL) Earnings Disappoint in Q3? - Analyst Blog

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Toll Brothers Inc. ( TOL ) is set to release its third-quarter fiscal 2014 results on Sep 3, before the market opens. Last quarter, it posted a positive surprise. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

Toll Brothers expects fiscal 2014 gross margin to improve 175 to 200 bps over 2013 levels. Most of this gross margin improvement is expected to occur in the third quarter. The company expects operating margin to expand as well in the soon-to-be reported quarter. The backlog conversion in third quarter is expected to be around 31%.     


Toll Brothers has been witnessing a leveling of luxury housing demand since the fourth quarter of 2013 and this trend has continued so far in fiscal 2014. During the second quarter of fiscal 2014, Toll Brothers witnessed flat orders for the same reason. However, orders recorded a high double-digit sequential improvement during the quarter. This sequential improvement in trend is likely to continue in the third quarter.

Earnings Whisper?

Our proven model does not conclusively show that Toll Brothers is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Negative Zacks ESP:   The ESP for Toll Brothers is -2.17% as the Most Accurate estimate stands at 45 cents while the Zacks Consensus Estimate is higher at 46 cents

Zacks Rank #2 (Buy): Toll Brothers carries a Zacks Rank #2 (Buy) which when combined with a -2.17% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that can be considered as our model shows that they have a favorable combination of elements:

  • Ryland Group Inc. ( RYL ), Earnings ESP of +1.28% and a Zacks Rank #3 (Hold)
  • Fortune Brands Home & Security, Inc. ( FBHS ), Earnings ESP of +1.75% and a Zacks Rank #3
  • Continental Building Products, Inc. ( CBPX ), Earnings ESP of +10.53% and a Zacks Rank #3 (Hold).

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TOLL BROTHERS (TOL): Free Stock Analysis Report

FORTUNE BRD H&S (FBHS): Free Stock Analysis Report

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CONTL BLDG PRD (CBPX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: TOL , FBHS , RYL , CBPX

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