Toll Brothers Announces Record Breaking Preliminary Q4

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Nov 11, 2014

The largest U.S. luxury homebuilder, Toll Brothers (TOL, Financial), reported its rough estimate on the fourth-quarter earnings of the fiscal year on November 10, leading to analysts’ cheering on the recovery pace seen in the housing market. The homebuilder has been able to fetch better returns in terms of both top and bottom lines, chiefly due to the quick recovery of the housing sector in the U.S. which hit the dumps during the housing bubble in 2008-2009. Though the actuals will be disclosed only on December 10 in the earnings call, let’s try to dive into the preliminary results for contracts, backlog and home building revenues for the fourth quarter and the fiscal year that ended on October 31.

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The number mix

The fourth quarter preliminary total revenue came in at $1.35 billion, higher than the $1.31 billion that was estimated. Sales of 1,807 units increased 29% in dollars and 22% in units, compared to the previous fiscal year’s fourth-quarter results of $1.04 billion and 1,485 units.

Even the average price of homes delivered was $747,000, compared to $732,000 in the third quarter of $703,000 in the previous fiscal year’s fourth quarter.

In the fourth quarter, net signed contracts came in to $970.2 million and 1,282 units that rose 16% in dollar terms and 10% in units. The company ended the fiscal year with a backlog of approximately $2.72 billion and 3,679 units, an increase of 3% in dollar terms and even in units over the earlier year’s backlog.

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Toll Brothers’ CEO, Douglas C. Yearley Jr., stated, “For the first time in four quarters, our contracts were up in both dollars and units compared to the prior year's same period. We also saw solid growth in our traffic and deposits. We are pleased with our strong finish to FY 2014 and, given the fourth quarter's improvement in demand, begin FY 2015 with optimism.”

Housing sector recovery is the key driving force

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The latest housing data suggests that things could be picking up again in the U.S. after the slowness witnessed in the past few years. New home starts rose 6.3% to a 1.02 million-unit annual pace in September, after a 14.4% fall seen in the month of August. Toll Brothers have shared that the jump in revenue terms was possible as it was able to sell more homes at higher prices as housing demand strengthened.

The stock has risen about 1% in the past 12 months, while the Dow Jones U.S. home construction index increased 21%. The stronger sales by Toll Brothers may indicate that the “Hope Trade” predicted by analysts is coming to fruition.

Even sales in the third quarter had climbed 8% to $2.37 billion in the third quarter, ahead of estimates for $2.35 billion.

Last word

Toll Brothers’ positive report card has also affected the Home Builders index and the individual housing stocks which have shown a climb up in the share price. More will be revealed when the actual results are declared the coming month. Investors are curious about the guidance for the next fiscal year which is expected to remain on a positive note as well. So, let’s stay tuned and keep watching!