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Toll Brothers (TOL) Q2 Earnings Top, View Up on Solid Demand

Toll Brothers, Inc. TOL reported impressive second-quarter fiscal 2021 results. The company’s earnings and revenues topped the Zacks Consensus Estimate as well as increased on a year-over-year basis. The upside was backed by solid demand owing to continued strength of the housing market.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “These exceptional results reflect the strategic expansion of our product lines and geographies, as well as structural changes we have made in how we operate to focus on driving sustainable increases in profit margins and return on equity. Based on the land we currently control, we are projecting community count growth to 340 communities at fiscal year end, with an additional 10% growth in fiscal 2022.”

Backed by solid housing prospects and stellar fiscal second-quarter performance, it raised its fiscal 2021 guidance for key metrics. It expects continued margin improvement through the second half of fiscal 2021 and in 2022, and return on beginning equity in excess of 20% for fiscal 2022.

Earnings & Revenue Discussion

The country’s leading luxury homebuilder reported earnings of $1.01 per share, surpassing the Zacks Consensus Estimate of 80 cents by 26.3%. Also, the said figure grew 71.2% from the year-ago figure of 59 cents per share as a result of higher revenues and margins.

Toll Brothers Inc. Price, Consensus and EPS Surprise

Toll Brothers Inc. Price, Consensus and EPS Surprise

Toll Brothers Inc. price-consensus-eps-surprise-chart | Toll Brothers Inc. Quote

Revenues of $1.93 billion topped the consensus mark of $1.77 billion by 9% and increased 24.6% year over year, backed by improvement in demand during the quarter.

Segment Detail

Toll Brothers operates under two reportable segments, namely Traditional Home Building and Urban Infill ("City Living").

Revenues from Traditional Home Building totaled $1.78 billion, up 20.2% year over year, and that of City Living increased 57.6% to $58 million.

Inside the Headline Numbers

Homebuilding deliveries grew 18% year over year to 2,271 units and 21% in dollars. Deliveries increased in all the regions served by the company. The average price of homes delivered was $808,600 for the quarter, up 2.5% from the year-ago level of $788,500.

The number of net signed contracts during the reported quarter was 3,487 units, up 84.9% year over year. The value of net signed contracts was $3.1 billion, reflecting a rise of 96.6% from the year-ago quarter.

At fiscal second quarter-end, Toll Brothers had a backlog of 10,104 homes, representing a 57.2% year-over-year increase. Moreover, potential revenues from backlog improved 58.2% year over year to $8.7 billion. The average price of homes in backlog totaled $860,100, up from $854,500 at the end of the comparable period of fiscal 2020.

Cancellation rate for the reported quarter was 4% compared with 9.7% in the prior-year period.

Margins

The company’s home sales adjusted gross margin was 24.4%, expanding 150 basis points (bps) for the quarter.

SG&A expenses — as a percentage of home sales revenues — came in at 11.9%, which decreased from 13.8% in the year-ago quarter.

Financials

Toll Brothers had $715 million cash and cash equivalents as of Apr 30, 2021 compared with $1.37 billion at fiscal 2020-end.

Total debt at fiscal second quarter-end was $3.58 billion, down from $3.96 billion at fiscal 2020-end. Debt to capital was 42.2% at fiscal second quarter-end versus 44.8% a year ago.

Fiscal Third-Quarter Guidance

Toll Brothers expects home deliveries of 2,675 units (indicating a decline from 2,022 units delivered in the prior-year quarter) at an average price of $820,000-$840,000 (suggesting a rise from $805,000 a year ago).

Adjusted home sales gross margin is expected to be 24.8%, implying an increase from 21.9% in the year-ago period. SG&A expenses are estimated to be 11.6% of home sales revenues (pointing to growth from 9.9% a year ago). The company expects effective tax rate to be 26%.

Fiscal 2021 Guidance

For full-year fiscal 2021, home deliveries are now anticipated in the range of 10,200-10,400 units (indicating an improvement from 8,496 units reported in fiscal 2020) at an average price of $805,000-$825,000. Average price in the year-ago quarter was $816,500. Earlier, home deliveries were expected in the 10,000-10,4000 range.

Toll Brothers expects adjusted home sales gross margin of 24.6% (reflecting a marginal increase from 24.3% projected earlier). The current projection implies growth from 23.5% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2021 are projected to be 11.8% (suggesting fall from 12.5% in fiscal 2020). The current estimate reflects a decrease from the prior projection of 11.9%.

Zacks Rank

Toll Brothers  — which shares space with Lennar Corporation LEN, D.R. Horton, Inc. DHI and PulteGroup, Inc. PHM in the Zacks Building Products - Home Builders industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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