Toll Brothers (TOL, Financial) recently announced 53% increase in third quarter fiscal year 2014 total revenue of $1.06 billion from third quarter fiscal year 2013 total revenue of $689.2 million. It reported 110% increase in fiscal year 2014 third quarter net income to $97.7 million, or $0.53 per share diluted, compared to $46.6 million, or $0.26 per share diluted, during third quarter of fiscal year 2013.
A strong performance across the board
Toll Brothers reported 36% increase in units to 1,444 homebuilding delivery units during 2014's fiscal third quarter, compared to fiscal year 2013's third quarter. The average price of homes delivered also increased to $732,000 in 2014’s fiscal third quarter, compared to $651,000 during the same period last year.
Net signed contracts declined 4% in dollars to $949.1 million and reduced 6% in units to 1,324 units during fiscal year 2014's third-quarter compared to the same period last year. The average price of net signed contracts also increased to $717,000, compared to $707,000 during 2013's third quarter.
Based on per-community, net signed contracts were 5.25 units in fiscal year 2014's third-quarter as compared to 6.24 units during the same period last year, representing a year-over-year reduction.
Backlog increased 5% in units and 9% in dollars to 4,204 units and $3.1 billion respectively during third quarter 2014 compared to the backlog of 2013's third-quarter-end. The average price of homes in backlog increased from $709,000 in 2013's third quarter end to $737,000 during third quarter of 2014.
Toll Brothers announced 256 selling communities by the quarter end compared to 225 during the same period last year. Out of these selling communities eight were acquired during the purchase of Shapell Homes in February 2014. This figure is believed to grow further to 13 by the end of fiscal year, with additional 29 futuristic openings.
There’s encouraging expansion in traffic to 13% on a per community basis in the quarter for fiscal year 2014 compared to the same period last year. The traffic pattern has continued into August as well, with 19% increase in per community traffic against last August.
Toll Brothers is primarily driven by the solid earnings growth and the management is quite satisfied with the healthy and continued expansion in gross margins due to the recovering housing market condition.
Good growth in end markets
Toll Brothers is mainly pleased with its strong performance in several markets being eyed for growth, particularly the urban New York City region, Texas and Coastal California.
Going forward, Toll Brothers plans to open several new City Living Condo communities to be sold in Metro Washington DC and in Manhattan.
Toll Brothers is expanding its community count in key locations with contained demand yet to show up.
Toll Brothers is keenly focused on searching and delivering the best land in the exclusive locations for the superior communities for its clients. This strategy puts it in an extremely good position with the market returning to higher demand levels and innovative home production.
The apartment living segment of Toll Brothers is expanding hugely. At present, it has five joint ventures with above 1,900 units under construction coupled with 2,550 units under the approval process apart from two already completed and delivered joint venture communities comprising of 1,450 units.
Toll Brothers is focused on expanding its City Living brand which in turn is believed to expand its luxury market coverage, create and deliver superior value and allow alternate cash flow source.
Toll Brothers forecasts the deliveries in the fourth quarter to be in 1710 to 1910 homes range, totalling the entire 2014 deliveries in 5300 to 5500 homes range with the average delivered price per home for the complete year expected to be in $710,000 to $725,000 range.
Toll Brothers is reeling with the poor market pricing conditions as seen from the fact that Toll’s average selling price is just about 19% higher at present compared to last two years. Moreover, Toll has failed to offer attractive discounts to push home sales.
Conclusion
According to Yahoo Finance, the trailing P/E ratio of 19.10 is reasonable, but the company does not have a forward P/E ratio indicating loss, going forward. The PEG ratio of 0.50 is satisfactory and better than the industry’s average of 0.84. Diluted EPS of 1.66 is nominal. Finally, the investors are advised to forget all the short-term lows and focus on the company’s solid long-term growth prospects indicated by the CAGR for the next 5 years per annum of 34.00%, above the industry’s average of 16.19%, indicating promising returns in the long run.
