Toll Brothers (TOL) Shares Up on Q3 Earnings & Revenue Beat

Toll Brothers, Inc.'s TOL shares jumped nearly 3% in the after-hours trading session, after it reported impressive third-quarter fiscal 2020 results, wherein earnings and revenues topped the respective Zacks Consensus Estimate.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “Our third quarter net signed contracts were our highest third quarter ever in both units and dollars, and our contracts per community, at 8.5, were the highest third quarter in fifteen years. This strength has continued into August. We attribute the surge in demand to a number of factors, including historically low interest rates, a continued undersupply of homes, and consumers focused more than ever on the importance of home.”

Earnings & Revenue Discussion

The country's leading luxury homebuilder reported earnings of 90 cents per share for the quarter under review, which beat the consensus mark of 69 cents by 30.4%. However, the figure dropped 10% from the year-ago level of $1.00 per share as a result of lower revenues and reduced margins.

Consolidated revenues of $1.65 billion lagged the consensus mark of $1.55 billion by 6.8%. The reported figure also decreased 6.5% year over year due to lower average selling prices.

Segment Detail

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

Revenues from Traditional Home Building declined 5% year over year to $1.59 billion and that of City Living decreased 63.3% to $26.4 million for the quarter.

Toll Brothers Inc. Price, Consensus and EPS Surprise

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

Inside the Headline Numbers

Homebuilding deliveries during the quarter were up 1% year over year to 2,022 units. Except North, Mid-Atlantic and Pacific, deliveries increased in all other regions served by the company. Deliveries in Citi Living declined to 20 units from 40 units a year ago.

The average price of homes delivered was $805,000 for the quarter, down 8.6% from the year-ago level of $881,100.

The number of net signed contracts or orders during the reported quarter was 2,833 units, up 26.4% year over year. The value of net signed contracts was $2.21 billion, reflecting a 18.2% increase from the year-ago quarter.

At fiscal third quarter-end, it had a backlog of 7,239 homes, representing a 5.8% year-over-year increase. Potential revenues from backlog also grew 4.3% year over year to $6.09 billion.

Cancellation rate for the reported quarter was 8%, reflecting an increase from 6.5% in the prior-year period.

Margins

The company's adjusted home sales gross margin was 21.9%, which contracted 120 basis points (bps). Nonetheless, the metric improved sequentially due to a shift in the mix of deliveries and solid execution.

SG&A expenses — as a percentage of home sales revenues — were 9.9%, down 70 bps from the year-ago quarter. Operating margin of 9.1% was down 60 bps for the quarter.

Financials

Toll Brothers had $559.3 million cash and cash equivalents as of Jul 31, 2020 compared with $1.29 billion at fiscal 2019-end and $741.2 million at fiscal second quarter-end.

At fiscal third quarter-end, it had $1.776 billion available under the $1.905-billion revolving credit facility. Notably, this facility will mature in November 2024. The company has no significant debt maturities until February 2022.

Fourth-Quarter Fiscal 2020 Guidance

For the quarter, home deliveries are anticipated in the range of 2,400-2,550 units at an average price of $815,000-$835,000 (suggesting a decrease from the year-ago figure of $857,800). Home deliveries in the year-ago period were 2,672 units.

Toll Brothers expects adjusted home sales gross margin of 21.5%, implying a decline from 21.9% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, are projected at 9% (indicating no change from the year-ago period).

Zacks Rank

Toll Brothers — which shares space with PulteGroup Inc. PHM, NVR, Inc. NVR and D.R. Horton, Inc. DHI in the Zacks Building Products - Home Builders industry — currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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