Toll Brothers Disappoints on the Top Line in 3Q15
Analyzing the Housing Market's Luxury End with Toll Brothers' 3Q15 Results
Toll Brothers’ 2Q15 revenues short of Wall Street consensus
Toll Brothers (TOL) reported second-quarter revenues of $1.028 billion, which was below the Wall Street consensus of $1.04 billion. This was a decrease of 2.7% from the same quarter last year.
Part of Toll’s growth last year was boosted by favorable year-over-year comparisons due to the Shapell acquisition. Shapell has been owned for over a year now, so we are back to apples-to-apples comparisons.
We’re starting to see the effects of increasing home prices on housing demand, although the luxury end seems to be doing better than everything else. So far, the increase in interest rates is not affecting demand.
Virtually every builder, from Lennar Corporation (LEN) and D.R. Horton (DHI) to PulteGroup (PHM) and Standard Pacific (SPF), noted that buyers are starting to balk at high prices. Some have mentioned high interest rates as well. This is another example of how the luxury end of the market is doing much better than the lower price points. Investors interested in trading the homebuilding sector via an ETF should look at the S&P SPDR Homebuilder ETF (XHB).
The fourth quarter is beginning well, with net contracts up 16% in units compared to the same period last year.
Deliveries and backlog
Deliveries in the second quarter declined 3% in dollar terms and 2% in units. Backlog, which is an indication of future revenues, increased 19% in dollars and 6% in units. Backlog was the highest in eight years.
At the end of the quarter, Toll Brothers had approximately 45,000 lots owned and optioned, compared with 45,400 at the end of the second quarter and 49,000 the year before.
The company finished the quarter with 267 selling communities compared with 269 last quarter and 256 the year before.
Toll Brothers expects its fourth quarter deliveries to be between 1,645–1,945 units with an average selling price of $780,000–$800,000.
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