Toll Brothers (TOL) Tops Q1 EPS by 15c, Revenues Beat

Toll Brothers (NYSE: TOL) reported Q1 EPS of $0.76, $0.15 better than the analyst estimate of $0.61. Revenue for the quarter came in at $1.363 billion versus the consensus estimate of $1.26 billion.

• Net income and earnings per share were $112.1 million and $0.76 per share diluted, compared to net income of $132.1 million and $0.83 per share diluted in FY 2018’s first quarter. This decline in earnings per share was primarily the result of a (0.4)% effective tax rate in FY 2018’s first quarter due to the revaluation of the Company’s net deferred tax liability as a result of the enactment of the Tax Cuts and Jobs Act, compared to a 26.0% effective tax rate in FY 2019’s first quarter.
• Pre-tax income grew 15% to $151.4 million, compared to $131.6 million in FY 2018’s first quarter.
• Home sales revenues were $1.32 billion, up 12%; home building deliveries were 1,530, up 8%.
• Net signed contract value was $1.16 billion, down 31%; contract units were 1,379, down 24%.
• Backlog value at first quarter end was $5.37 billion, down 4%; units in backlog totaled 5,954, down 5%.
• Home sales gross margin was 21.0%; Adjusted Home Sales Gross Margin, which excludes interest and inventory write-downs (“Adjusted Home Sales Gross Margin”), was 24.2%.
• Land sales gross profit was $9.6 million in FY 2019’s first quarter.
• SG&A, as a percentage of home sales revenues, was 12.3%.
• Income from operations was 9.1% of total revenues.
• Other income and Income from unconsolidated entities was $27.0 million.
• The Company repurchased approximately 785,000 shares of its common stock at an average price of $32.02 per share for an aggregate purchase price of approximately $25.1 million.

Second Quarter FY 2019 Financial Guidance:

• Deliveries of between 1,650 and 1,850 units with an average price of between $860,000 and $890,000.
• Adjusted Home Sales Gross Margin of approximately 23.1%.
• SG&A, as a percentage of second quarter home sales revenues, of approximately 11.3%.
• Other income, Income from unconsolidated entities, and land sales gross profit of approximately $13 million.
• Tax rate of approximately 27.5%.

Douglas C. Yearley, Jr., Toll Brothers’ chairman and chief executive officer, stated: “FY 2019’s first quarter results were strong, with pre-tax earnings rising 15%, home sales revenues increasing 12%, and home sales gross margin improving 50 basis points compared to one year ago.

“We attribute the decline in our first quarter contracts to a difficult year-over-year comparison, a lack of current inventory in certain locations and the industry-wide slowdown that began in the second half of 2018. On a per-community basis, contracts tracked more closely to FY 2016’s and 2017’s first quarter, which were still quite healthy, than to the more robust FY 2018 first quarter. Although we experienced a year-over-year decline in contracts each month of this first quarter, the decline decreased as the quarter progressed.

“While non-binding reservation deposits for the first three weeks of February were still behind last year, we are encouraged by improving demand trends during the month, and especially by last week’s deposits, which exceeded last year’s same week.

“Nationally, the economy remains healthy, unemployment is low, and housing supply is still tight. Many of our potential customers have benefited from a strong stock market and enjoy increased equity in their existing homes. Mortgage rates have recently decreased to their lowest levels in a year. These factors are all generally positive for the home building sector.

“Given our focus on the upscale market, our strategy has always been to acquire the best land in the most attractive locations. We evaluate each community weekly to carefully balance sales pace and home price. With our unique land position, we intend to continue this balanced approach.

“With our strong balance sheet, we continue to evaluate attractive land opportunities, new markets, and builder acquisitions as we pursue our strategy of diversifying our product lines and geographic footprint. With our well-located land, strong brand, and wide variety of communities, we believe we are well positioned.

“This quarter, we again were named by Fortune magazine as the World’s Most Admired Home Building Company. This is the fifth consecutive year we have been so honored. It is a recognition not only of the quality of our homes and our brand, but of the tremendous hard work of our Toll Brothers associates.”

Martin P. Connor, Toll Brothers’ chief financial officer, stated: “Our first quarter results exceeded our expectations, driven by strong revenue growth and gross margins, and improved SG&A leverage.

“Our balance sheet remains solid. We ended our first quarter with total liquidity of $1.9 billion, including over $800 million of cash and cash equivalents and $1.12 billion available under our revolving bank credit facility. We finished the quarter with a book value per share of approximately $33.

“Given that we are in the early stages of the spring selling season and in light of current market conditions, there continues to be a wide range of possible results for our full fiscal year. Therefore, we have limited our forward-looking income statement guidance to the second quarter of 2019.”

For earnings history and earnings-related data on Toll Brothers (TOL) click here.

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