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Toll Bros. EPS Soars In Q3, But Orders Fall

Toll Bros. (TOL) breezed past quarterly profit views Wednesday on higher home prices, but Wall Street paid more attention to declining orders and the luxury home builder's narrowed full-year deliveries forecast.

Toll reported net signed contracts of 1,324 homes for its fiscal third quarter, which ended in July. That was down 6% from the prior year. On a dollar basis, net contracts fell 4% to $949.1 million. Toll also narrowed its full-year delivery target to 5,300-5,500 homes from its prior range of 5,100-5,850, trimming the midpoint slightly.

"We believe the slower order pace was the contributing factor to management narrowing FY14 unit closing (delivery) guidance," Sterne Agee analyst Jay McCanless said in a note.

Toll shares fell nearly 5% to 33.96. Among other builders, Lennar (LEN) lost 2%, D.R. Horton (DHI) 2.5% and PulteGroup (PHM) 4%.

Toll's orders in Q3 fell below JPMorgan analyst Michael Rehaut's forecast, "mostly driven by sales pace falling short of our estimate.

The orders slowdown came during an otherwise robust quarter for Toll. EPS more than doubled from the prior year to 53 cents, topping views by 8 cents. Revenue climbed 53% to $1.06 billion, also above consensus.

The top line was helped by a 12% year-over-year rise in the average price of homes delivered, to $732,000. Unit deliveries gained 36% to 1,444 units.

Toll's focus on higher-priced homes has helped it weather recent housing challenges better than builders that specialize in first-time or midpriced homes.

Rising home valuations have hurt sales of many lower-priced homes, even as mortgage rates fall back down to their lowest levels in more than a year. Some builders, including D.R. Horton, have had to offer discounts in certain markets to increase sales. Those issues are not a big problem in the upper end of the housing market.

"High-end buyers have the financial wherewithal to make those transactions, and they also feel much more confident because the stock market is doing well," said Lawrence Yun, chief economist at the National Association of Realtors.

Toll CEO Douglas Yearley said that he was "encouraged" by August's 19% year-over-year gain in traffic per community. But analyst Rehaut noted that contracts fell 4% per community .