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Toll Brothers (TOL) Down 3.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Toll Brothers (TOL). Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Toll Brothers due for a breakout? 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) Q1 Earnings & Revenues Top, View Raised

Toll Brothers, Inc. reported impressive first-quarter fiscal 2021 results, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate. The company lifted its forecast for full-year deliveries.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “The housing market remains very strong, driven by atight supply of new and existing homes for sale, favorable demographic trends, low mortgage rates, and a heightenedappreciation for home ownership, especially among our customers.”

Earnings & Revenue Discussion

The country's leading luxury homebuilder reported earnings of 76 cents per share for the quarter under review, which beat the Zacks Consensus Estimate of 49 cents by 55.1%. The figure also grew 85.4% from the year-ago level of 41 cents per share as a result of higher revenues and margins.

Consolidated revenues of $1.56 billion topped the consensus mark of $1.33 billion by 18%. The reported figure also increased 17.4% year over year due to higher deliveries.

Inside the Headline Numbers

Homebuilding deliveries during the quarter were up 12.4% year over year to 1,770 units. Except Mid-Atlantic and Pacific, deliveries increased in all other regions served by the company. Deliveries in Citi Living declined to 7 units from 36 units a year ago.

The average price of homes delivered was $793,900 for the quarter, down from the year-ago level of $805,300.

The number of net signed contracts or orders during the reported quarter was 2,874 units, up 59.1% year over year. The value of net signed contracts was $2.51 billion, reflecting a 68.4% increase from the year-ago quarter.

At fiscal first quarter-end, it had a backlog of 8,888 homes, representing a 37.6% year-over-year increase. Potential revenues from backlog also grew 37.1% year over year to $7.47 billion.

Cancellation rate for the reported quarter was 3.7%, reflecting a decrease from 9.4% in the prior-year period.

Margins

The company's adjusted home sales gross margin was 22.9%, which contracted 10 basis points (bps).

SG&A expenses — as a percentage of home sales revenues — were 14.9%, down 190 bps from the year-ago quarter.

Financials

Toll Brothers had $949.7 million cash and cash equivalents as of Jan 31, 2021 compared with $1.37 billion at fiscal 2020-end.

Total debt at fiscal first quarter-end was $3.74 billion, slightly down from $3.96 billion at fiscal 2020-end. Debt to capital was 43.8% at fiscal first quarter-end versus 44.8% a year ago.

Second-Quarter Fiscal 2021 Guidance

For the quarter, home deliveries are anticipated to be 2,175 units, with an average price of $785,000-$805,000.

Toll Brothers expects adjusted home sales gross margin of 23.4%. SG&A expenses, as a percentage of home sales revenues, are projected at 13%.

Fiscal 2021 Guidance

The company now expects deliveries between 10,000 and 10,4000 units, with an average price of $790,000-$810,000. Earlier, the same was expected in the 9,600-10,200 range. Toll Brothers expects adjusted home sales gross margin of 24.3% (versus 22.4% projected earlier). SG&A expenses, as a percentage of home sales revenues, are projected at 11.9% (compared with 12.2% expected earlier).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -9.82% due to these changes.

VGM Scores

At this time, Toll Brothers has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Toll Brothers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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