Toll Brothers Inc., Horsham, Pa. (NYSE:TOL) on Tuesday reported net income or $191.9 million, or $1.17 per diluted share diluted, for its fourth quarter and fiscal year ended October 31, 2017. The gain compared to net income of $114.4 million, or $0.67 per diluted share, in the prior year quarter. Analysts were expecting a gain of $1.19 per share. Shares of TOL were down as much as 6% in pre-market trading Tuesday morning.
Revenues were up 9% to $2.03 billion as home building deliveries also rose 9% to 2,424 units.
Net signed contract value was $1.75 billion, up 20%; contract units were 1,979, up 15%. The average price of net signed contracts was $886,800, compared to $847,800 one year ago. The cancellation rate was 7.9%, compared to 4.9% in FY 2016’s fourth quarter.
Backlog value at the end of fiscal 2017 rose to $5.06 billion, up 27%; units totaled 5,851, up 25%.
Gross margin, as a percentage of revenues, was 22.3%. Adjusted Gross Margin, which excludes interest and inventory write-downs (“Adjusted Gross Margin”), was 25.3%. SG&A, as a percentage of revenues, was 8.3%
Income from operations was 14.0% of revenues.
Other income and Income from unconsolidated entities of $17.3 million declined from $32.7 million. In addition, in the fourth quarter the Company:
- Redeemed $287.5 million of 0.5% convertible securities due 2032 in September, eliminating 5.9 million shares from the future diluted share count.
- Redeemed $400 million principal amount of 8.91% senior notes at maturity in October.
- Repurchased approximately 5.2 million shares of its common stock at an average price of $38.48 per share for a total purchase price of approximately $200.2 million.
For the full fiscal year:
- FY 2017 net income was $535.5 million, or $3.17 per share diluted, compared to net income of $382.1 million, or $2.18 per share diluted.
- Pre-tax income was $814.3 million, compared to $589.0 million in FY 2016, which was negatively impacted by $125.6 million in warranty charges.
- Revenues were $5.82 billion, up 12%; home building deliveries were 7,151 units, up 17%.
- Net signed contract value was $6.83 billion – up 21%; contract units were 8,175 – up 22%.
- Gross margin, as a percentage of revenues, was 21.5%.
- Adjusted Gross Margin was 24.8%.
- SG&A, as a percentage of revenues, was 10.5%.
- Income from operations was 11.1% of revenues.
- Other income and Income from unconsolidated entities of $169.4 million increased from $99.0 million.
- Return on beginning stockholders’ equity was 12.7%.
The company ended FY 2017 with $712.8 million of cash and marketable securities, compared to $946.2 million at 2017’s third-quarter end and $633.7 million at FYE 2016. At FYE 2017, the Company also had $1.15 billion available under its $1.295 billion 20-bank credit facility, which matures in May 2021.
Douglas C. Yearley, Jr., Toll Brothers’ chief executive officer, stated: “Demand has remained healthy across all our demographic segments. We completed FY 2017 with our highest annual contracts and revenues in over a decade. Contracts and revenues for the full fiscal year were up 21% and 12%, respectively. Fourth quarter contracts rose 20% in dollars, our fifth quarter in a row of 20%-or-greater growth. We ended FY 2017 with a $5 billion backlog, up 27% in dollars and 25% in units from one year ago. This should result in strong revenue and earnings per share growth in FY 2018.
“In FY 2017, we reaped the rewards of our geographic diversification strategy, particularly in the west. Acquisitions of builders in Seattle in FY 2011, California in FY 2014 and Boise in FY 2017, as well as quality land purchases across all our western markets, have led to significant growth. California and the West region combined for 47% of our revenues this fourth quarter. In California, our largest region, contracts were up 56% in dollars and 54% in units in our fourth quarter.
“We also benefited from our ongoing product diversification strategy. In addition to continued success in our core, luxury move-up market, we are expanding our active adult product line nationally, have introduced a new millennial-focused product line and continue to develop our Toll Brothers City Living and Apartment Living divisions.
“Our Apartment Living rental business continues to expand across the nation. In addition to our well-established divisions focused on urban and suburban markets in the corridor from metro Washington, D.C. to Boston, we now have teams focused on growth in Los Angeles, San Francisco, San Diego, Phoenix, Dallas and Atlanta and a pipeline totaling over 14,000 units of completed projects, those in construction, under development or in approvals. We have begun to harvest some of the value created under Apartment Living. In FY 2017, we monetized a small portion of the value in two recently developed, now-stabilized properties through a recapitalization, resulting in income of $26.7 million. In FY 2018 and beyond, we expect to continue to grow the income from this business.
“Our City Living high-rise division remains active with its primary focus still on the New York City area, including Manhattan, Brooklyn, Hoboken and Jersey City. In FY 2017, we formed separate joint ventures to develop two new Manhattan high-rise towers with projected costs totaling over $600 million. By forming these joint ventures, we will lower our investment, increase our return on equity, reduce our risk and benefit from attractive construction financing. As of today, we already have 64 contracts and an additional 12 deposits at these two projects.”
Robert I. Toll, executive chairman, added, “This summer we celebrated the 50th Anniversary of the founding of Toll Brothers. From our start as a local builder in the suburbs of Philadelphia, we are now a Fortune 500 company that has been named World’s Most Admired Home Builder for the past three years in a row by Fortune magazine. Our accomplishments are directly attributable to the diligence and dedication of our Toll Brothers associates, to whom we are very grateful.”
