A month has gone by since the last earnings report for Toll Brothers (TOL). Shares have added about 1.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Toll Brothers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Toll Brothers’ (TOL) Q2 Earnings & Revenue Beat Estimates
Toll Brothers, Inc. reported second-quarter fiscal 2019 earnings of 87 cents per share during the reported quarter, surpassing the Zacks Consensus Estimate of 77 cents by 13%. Also, the said figure grew 10.1% from the year-ago figure of 79 cents as a result of improved margins.
Revenues of $1.72 billion topped the consensus mark of $1.54 billion by 11.4%. The reported figure also increased 7.3% year over year, backed by improvement in demand during the quarter.
Toll Brothers operates under two reportable segments, namely Traditional Home Building and Urban Infill ("City Living"). Revenues from Traditional Home Building totaled $1.63 billion, up 7.8% year over year, while that of City Living decreased 6.1% to $84.1 million during the quarter.
Inside the Headline Numbers
Consolidated homebuilding deliveries during the quarter grew 1% year over year to 1,911 units and 7% in dollars. Deliveries decreased in all the regions served by the company except South. The decline was fully offset by a year-over-year increase in deliveries in Citi Living to 72 units.
The average price of homes delivered was $895,900 in the quarter, up 5.7% from the year-ago level of $847,900. The number of net signed contracts during the reported quarter was 2,424 units, down 9% year over year. The value of net signed contracts was $2 billion, reflecting a decrease of 16% from the year-ago quarter.
At the end of the fiscal second quarter, Toll Brothers had a backlog of 6,467 homes, representing an 8% year-over-year decline. Moreover, potential revenues from backlog declined 11% year over year to $5.66 billion. The average price of homes in backlog totaled $875,500, down from $904,800 at the end of the comparable period of fiscal 2018. Cancellation rate during the reported quarter was 5.3% compared with 5.6% in the prior-year period.
The company’s home sales adjusted gross margin was 23.5%, expanding 100 basis points (bps) in the quarter. SG&A expenses, as a percentage of home sales revenues, came in at 10.4%, in line with the year-ago quarter. Operating margin of 9.4% grew 100 bps in the quarter.
Toll Brothers had $924.4 million cash and cash equivalents as of Apr 30, 2019 compared with $1.18 billion at fiscal 2018-end. During the fiscal second quarter, the company repurchased approximately 2,700 shares, at an average price of $36.95 per share, for a total purchase price of about $0.1 million.
Fiscal Third-Quarter Guidance
Toll Brothers expects home deliveries between 1,800 units and 2,000 units (below 2,246 units delivered in the prior-year quarter) at an average price of $855,000-$880,000 (versus $851,900 a year ago).
Adjusted home sales gross margin is expected to be approximately 22.5% compared with 24.3% in the year-ago period. SG&A expenses are estimated to be nearly 10.7% of home sales revenues (compared with 9.1% a year ago). The company expects effective tax rate to be 27.5%.
Fiscal 2019 Guidance
For full-year fiscal 2019, home deliveries are anticipated in the range of 7,700-8,100 units (versus 8,265 units reported in fiscal 2018) at an average price of $855,000-$880,000 (the year-ago figure was $864,300).
Toll Brothers expects adjusted home sales gross margin of about 23%, down from 23.7% recorded in the year-ago period. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2019 are projected to be nearly 10.4% (compared with 9.6% in fiscal 2018).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -26.17% due to these changes.
Currently, Toll Brothers has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Toll Brothers has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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