Shares of Toll Brothers, Inc. (NYSE:TOL) were trading up in double digits Tuesday after the company reported net income of $1.93 million, or $1.26 per share, for its fiscal third quarter ended July 31. Analysts were expecting a gain of $1.03.
Among the results reported:
- Revenues were $1.91 billion – up 27%; home deliveries were 2,246 units – up 18%
- Net signed contracts value was $2.03 billion – up 12%; contract units were 2,316 – up 7%
- Per-community net signed contracts were 8.10 units per community – up 18%
- Backlog value at third-quarter end rose to $6.48 billion – up 22%; units totaled 7,100 – up 13%
- Gross margin, as a percent of revenues, was 21.1%
- Adjusted Gross Margin, which excludes interest and inventory write-downs (“Adjusted Gross Margin”), was 24.3%
- Inventory write-downs were $11.1 million, compared to $2.4 million
- SG&A, as a percentage of revenues, was 9.1%
- Income from operations was 12.0% of revenues
For the full year, the company expects:
- Full FY 2018 deliveries of between 8,100 and 8,400 units with an average price of between $835,000 and $860,000; fourth-quarter deliveries of between 2,550 and 2,850 units with an average price of between $840,000 and $870,000
- FY Adjusted Gross Margin of approximately 24.0% of revenues, consistent with the mid-point of its previous guidance range; fourth-quarter Adjusted Gross Margin of approximately 24.8%
- FY SG&A, as a percentage of FY revenues, of approximately 9.8%; fourth-quarter SG&A, as a percentage of fourth-quarter revenues, of approximately 8.1%
- FY Other income and Income from unconsolidated entities of approximately $145 million, with approximately $55 million in the fourth quarter
- FY tax rate of approximately 23%; fourth-quarter tax rate of approximately 28.5%
Douglas C. Yearley, Jr., Toll Brothers’ CEO, recited a litany of postive results : “We achieved 12% growth in the value of new contracts signed, which, at $2.03 billion, was the highest for any third quarter in our history. Record third-quarter contracts and a third-quarter-end backlog, up 22% in dollars from one year ago, indicate revenue and earnings growth in FY 2019.
“On a per-community (same store) basis, contracts of 8.1 were the highest for a third quarter in over a decade, and up 18% compared to FY 2017. Our community count grew from 283 at second-quarter end to 301 at third-quarter end but still lagged FY 2017’s 312 at third-quarter end. We expect to reach approximately 315 selling communities by FYE 2018, which should give us a strong start for FY 2019. And we expect further community count growth by FYE 2019.
“The value of contracts in the West, South and Mid-Atlantic regions and in our City Living division were all up at least double digits while the North region was essentially flat. In California, contracts were down 1% in dollars and 4% in units. Contracts per-community in California declined from 11.3 in FY 2017’s third quarter to 10.0 this quarter. However, contracts per-community in California were still well-ahead of the company-wide average of 8.1. While California is not as hot as a year ago, it is still one of our stronger markets. Compared to one year ago, backlog in California was up 55% in value at third-quarter end. Most of this backlog will be delivered in FY 2019.
“Our double-digit growth in revenues, contracts and backlog and our strong earnings reflect the health of the new home industry in general and our unique position in the luxury market. Through our customization program, our buyers are adding, on average, $165,000 in lot premiums and structural and designer options to their homes. We are also benefiting from the quality of our brand, the diversity of our product lines and our attractively-located land pipeline across approximately 50 markets. In the current supply-constrained housing environment, we are well-positioned to grow.”
Robert I. Toll, executive chairman, stated: “We believe there is room for continued growth in the new home market in the coming years. Household formations have been increasing and in many regions the aging housing stock may not satisfy the lifestyles of today’s buyers. Yet new home production has not kept pace with the growth in population and households. On the single-family side, housing starts, other than during the anemic years of this recovery, are at their lowest level since 1970. In addition, existing home values have increased, providing potential move-up and empty nester customers with more equity that they can put toward a new home purchase. We believe these two groups, along with the growing number of millennials starting to buy homes, are all sources of potential new demand in the coming years.”
The company ended FY 2018’s third quarter with a debt-to-capital ratio of 44.5%, compared to 44.6% at FY 2018’s second-quarter end and 45.8% at FY 2017’s third-quarter end. It ended the quarter with approximately 53,600 lots owned and optioned, compared to 51,000 one quarter earlier, and 47,800 one year earlier. At FY 2018’s third-quarter end, approximately 33,900 of these lots were owned, of which approximately 16,900 lots, including those in backlog, were substantially improved. During the quarter, the company purchased 4,308 lots for $306.1 million.
TOL ended the quarter with 301 selling communities, compared to 283 at FY 2018’s second-quarter end, and 312 at FY 2017’s third-quarter end. The company now expects to end FY 2018 with approximately 315 selling communities.
