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Toll' 2Q Earnings In Line, Revs Miss - Analyst Blog

Posted
5/23/2013 9:27:00 AM
By: Zacks.com
Referenced Stocks:DHI;KBH;RYL;TOL

U.S. homebuilder, Toll Brothers, Inc. , ( TOL ) reported adjusted earnings of 7 cents per share in the second quarter of fiscal 2013, in line with the Zacks Consensus Estimate. Adjusted earnings exclude a one-time pre-tax gain related to the previously reported settlement of derivative litigation and the impact of inventory writedowns.

Adjusted earnings (excluding write downs) also declined 30% from the prior-year quarter.

Quarter Highlights

The company reported revenues of $516 million in the second quarter of fiscal 2013, up 38% year over year, driven by volume growth. However, reported revenues missed the Zacks Consensus Estimate of $526 million by 1.9%.

The number of homebuilding deliveries increased to 894 units, up 33% year over year, attributable to a rise in demand and low competition for luxury homes. The average price of homes delivered was $577,000 in the quarter, up 3.6% year over year, owing to shift in geographic and product mix.

Values of net orders signed during the quarter were $1.19 billion, up 57% year over year. Number of net orders signed was 1,753, up 36% year over year. Order growth was driven by strong housing demand and increased pricing. The average price of net signed contracts was $678,000 in the quarter, up 15.9% year over year, as the company started raising prices in most of the markets.

The company's backlog totaled 3,655 homes as of Apr 30, 2013, up 52% y/y. Potential housing revenues from backlog grew 69% year over year to $2.53 billion, primarily attributable to hike in prices of backlogs.

The company's gross margin (excluding interest and write-downs) grew 10 basis points (bps) to 23.3%, driven by improved volumes. However, gross margins declined 10 basis points sequentially due to mix shift in deliveries from high margin communities to low margin communities. Interestingly, the decline in margin was much better than the company's anticipated decline of 100 basis points, as the deliveries from lower margin communities were not as big as expected.

Selling, general and administrative expenses were $79.6 million in the quarter, up 16.5% year over year. As a percentage of revenues, selling, general and administrative expenses improved 290 basis points to 15.4% on the back of increased revenues in the quarter.

Outlook

Toll Brothers expects to deliver 3,850 to 4,200 homes in fiscal 2013 compared to the prior guidance of 3,750 to 4,300 homes. The company expects to deliver 25% more homes in the fourth quarter than the third quarter of 2013. As such, the company expects 20% more revenues in the fourth quarter 2013 than in the third quarter 2013. The company expects average price of homes in the range of $610,000 and $630,000 for full year 2013, tighter than the prior guidance range of $595,000 to $630,000. The company further expects average prices to be $25,000 higher in the third quarter than the fourth quarter 2013.  

The company expects gross margin to improve 275 bps sequentially in third quarter 2013 on the back of price increase and delivery of a high margin high-rise project in the quarter. For the fourth quarter of 2013, the company expects gross margin to improve 200 bps over the second quarter level.  For full year 2013, margin is expected to improve 80 basis points compared with the prior expectation of a 50 to 60 basis points improvement.

The company continues to expect 225 to 255 selling communities at the end of fiscal 2013. The company expects community count to grow thereafter in 2014.

Toll Brothers carries a Zacks Rank #3 (Hold).

Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. ( DHI ), Ryland Group Inc. ( RYL ) and KB Home ( KBH ). While D.R Horton and Ryland carry a Zacks Rank #1 (Strong Buy), KB Home carries a Zacks Rank #2 (Buy).



D R HORTON INC (DHI): Free Stock Analysis Report

KB HOME (KBH): Free Stock Analysis Report

RYLAND GRP INC (RYL): Free Stock Analysis Report

TOLL BROTHERS (TOL): Free Stock Analysis Report

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