Prospective homebuyers face challenges due to limited inventory and high interest rates, but these conditions benefit new homebuilders. Luxury homebuilder Toll Brothers (TOL, Financial) reported strong Q2 results and raised its FY24 EPS and home deliveries guidance to approximately $14.00 (from $13.25-$13.75) and 10,400-10,800 units (from 10,000-10,500), respectively.
- TOL generated Q2 EPS of $4.55, which included a $1.17/share gain from selling land to a commercial developer. Despite uncertainties around analysts' estimates, the company's strong performance across key metrics suggests it likely outperformed on the bottom line.
- Home deliveries of 2,641 units (+6% yr/yr) exceeded TOL's guidance of 2,400-2,500 units, driven by favorable demographics and low existing home inventory.
- Adjusted home sales gross margin of 28.2% surpassed its forecast of 27.6%, with the average delivered price per home steady at about $1.0 million. Unlike many peers, TOL has not aggressively cut prices or offered incentives, benefiting from a more affluent customer base.
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TOL's focus on the luxury home market has been advantageous. The company plans to expand market share by offering more affordable luxury homes and increasing spec home supply.
- Although average selling prices are expected to decrease to $960,000-$970,000 for FY24, improved inventory turns, better leverage on fixed costs, and stronger revenue growth should offset the price drop.
- TOL's revised FY24 EPS guidance of $14.00 represents an estimated 13% EPS growth.
The main takeaway is that TOL's Q2 EPS was affected by a gain on sale, possibly leading to a sell-the-news reaction after a 15% stock rally over the past month. However, TOL's leadership in the luxury home market continues to provide a competitive edge in a resilient industry.
