Yahoo Finance Toll Brothers (TOL) Q2 Earnings Miss, Revenues Beat, Guidance Up
Toll Brothers, Inc. TOL reported mixed results for second-quarter fiscal 2024 (ended Apr 30, 2024), wherein its earnings missed the Zacks Consensus Estimate but revenues beat the same. Nonetheless, both the top and bottom lines increased on a year-over-year basis.
Shares of this leading luxury homebuilder gained 1.2% in the after-hours trading session on May 21, 2024, following the earnings release.
Toll Brothers' fiscal second-quarter success was driven by strong demand for new homes, bolstered by a resilient economy, favorable demographics, and a significant housing supply shortage. Addressing these market conditions, the company expanded its price points to include more affordable luxury homes and increased its supply of spec homes. These strategies allowed Toll Brothers to increase its market share, reduce cycle times, improve inventory turnover, and better leverage fixed costs, which resulted in revenue growth and higher operating margins. Additionally, a capital-efficient land strategy further enhanced returns, positioning the company for continued attractive returns in the future.
Following encouraging fiscal second-quarter performance and encouraging demand trend, the company has revised upward its full-year guidance for revenues and earnings. It now expects earnings per share (EPS) of approximately $14.00 in fiscal 2024 (versus $13.25-$13.75 of prior expectation) with a return on beginning equity of approximately 22%.
Earnings & Revenue Discussion
This Fort Washington, PA-based homebuilder reported EPS of $3.38, which missed the Zacks Consensus Estimate of $4.13 by 18.2% but increased 18.6% from the year-ago period profit level of $2.85. The increase was due to higher revenues.
Total revenues (including Home sales and Land sales and others) came in at $2.84 billion, which beat the consensus mark of $2.52 billion by 12.6% and grew 13.2% year over year. The growth was attributable to higher deliveries.
Toll Brothers Inc. Price, Consensus and EPS Surprise
Toll Brothers Inc. price-consensus-eps-surprise-chart | Toll Brothers Inc. Quote
Inside the Headlines
The company’s total home sales revenues improved 6.3% from the prior-year quarter (well above our projection of a decline of 1.3% year over year) to $2.65 billion. Homes delivered were up 6% year over year (ahead of our expectation of down 2% year over year) to 2,641 units. Deliveries increased across the company’s geographic regions served by the company barring North and Mountain. The average price of homes delivered was $1,002,600 for the quarter, up 0.3% from the year-ago level of $999,300. We had expected ASP to grow 0.6% year over year.
Moreover, net-signed contracts for the reported quarter were 3,041 units, up 30% year over year. The value of net signed contracts was $2.94 billion, indicating a rise of 29%.
At the fiscal second-quarter end, Toll Brothers had a backlog of 7,093 homes, representing a year-over-year decrease of 6%. Potential revenues from backlog declined 12% year over year to $7.38 billion. The average price of homes in the backlog totaled $1,040,200, down 5.9% from $1,105,900 a year ago.
The cancelation rate (as a percentage of signed contracts) for the reported quarter was 5.7% compared with 11.5% in the prior-year period.
Margins
The company’s adjusted home sales gross margin was 28.2%, contracting 10 basis points (bps) for the quarter. SG&A expenses, as a percentage of home sales revenues, were 9%, which decreased 10 bps from the year-ago quarter.
Financials
TOL had cash and cash equivalents of $1.03 million at the end of the fiscal second quarter compared with $1.3 billion at the fiscal 2023-end. At April 2024-end, it had $1.7 billion available under the $1.9 billion bank revolving credit facility, scheduled to mature in February 2028.
Total debt at the fiscal second-quarter end was $2.84 billion, down from $2.86 billion at the fiscal 2023-end. Debt to capital was 28% at the fiscal second-quarter end, down from 29.6% at the fiscal 2023-end.
On Mar 12, 2024, the company announced a 10% increase in its quarterly cash dividend, raising it to 23 cents per share from 21 cents. Subsequently, on Apr 19, 2024, the company paid the increased dividend of 23 cents per share to shareholders who were on record as of the close of business on Apr 5, 2024.
Fiscal Third-Quarter Guidance
Toll Brothers expects home deliveries of 2,750-2,850 units (versus 2,524 units delivered in the prior-year quarter) at an average price of $950,000-$960,000 (suggesting a decline from $1,059,100 a year ago). It expects the period-end community count to be 400.
Adjusted home sales gross margin is expected to be 27.7%, implying a decrease from 29.3% in the year-ago period. SG&A expenses are estimated to be 9.2% of home sales revenues, indicating a rise from 8.6% in the year-ago period. The company expects the effective tax rate to be 26%.
Fiscal 2024 Guidance Raised
For fiscal 2024, home deliveries are now anticipated to be in the range of 10,400-10,800 units (versus earlier expectations of 10,000-10,500 units). The estimated range reflects growth from 9,597 units in fiscal 2023. It still expects the period-end community count to be 410.
The average price of delivered homes is still expected to be $960,000- 970,000 (versus the prior projection of $940,000-$960,000). The estimated range reflects a decrease from $1,027,900 reported in fiscal 2023.
Toll Brothers still expects an adjusted home sales gross margin of 28% compared with 28.7% reported in fiscal 2023. SG&A expenses, as a percentage of home sales revenues, are now projected to be 9.6% versus earlier expectation of 9.8% for fiscal 2024. In the year-ago period, the metric was 9.2%. The company still expects the effective tax rate to be 25.5%.
Zacks Rank
Toll Brothers currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Peer Releases
PulteGroup Inc. PHM reported stellar results in first-quarter 2024, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Also, PulteGroup’s metrics increased year over year on favorable demand conditions and its balanced operating model, which allows the company to more effectively meet the individual needs of first-time, move-up and active-adult consumers.
D.R. Horton, Inc. DHI reported second-quarter fiscal 2024 (ended Mar 31, 2024) results, with earnings and revenues surpassing Zacks Consensus Estimate.
On a year-over-year basis, both the top and bottom lines of D.R. Horton increased. The upside was backed by the supply of new and existing homes as affordable price points remain limited and robust housing demand is supported by favorable demographics amid elevated inflation and mortgage/interest rates.
NVR, Inc. NVR reported impressive first-quarter 2024 results, with earnings and Homebuilding revenues surpassing the Zacks Consensus Estimate.
NVR’s top and bottom lines increased on a year-over-year basis. The upside was backed by improved demand trends, which resulted in higher order volumes.
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