Toll Brothers (TOL) Misses Q2 EPS by 4c, Beats on Revenues; Offers In-Line FY18 Revenue Outlook

Toll Brothers (NYSE: TOL) reported Q2 EPS of $0.72, $0.04 worse than the analyst estimate of $0.76. Revenue for the quarter came in at $1.6 billion versus the consensus estimate of $1.58 billion.

FY 2018’s Second Quarter Financial Highlights (Compared to FY 2017’s Second Quarter):

• Net income was $111.8 million, or $0.72 per share diluted, compared to net income of $124.6 million, or $0.73 per share diluted, in FY 2017’s second quarter
• Pre-tax income was $152.7 million, compared to $199.2 million
• Impairments were $13.8 million compared to $4.3 million
• Income from unconsolidated entities was $2.6 million compared to $45.9 million
• Other income was $15.8 million compared to $14.0 million
• Revenues were $1.60 billion, the highest second quarter ever - up 17%; home building deliveries were 1,886 units - up 15%
• Net signed contract value was $2.38 billion, the highest quarter ever - up 18%; contract units were 2,666 - up 6%
• Per-community net signed contracts were 9.04 per community - up 16% - the highest second quarter since FY 2005
• Backlog value at second-quarter end rose to $6.36 billion, the highest second quarter ever - up 27%; units totaled 7,030 - up 17%
• Gross margin, as a percentage of revenues, was 18.8%
• Adjusted Gross Margin, which excludes interest and inventory write-downs (“Adjusted Gross Margin”), was 22.5%
• SG&A, as a percentage of revenues, was 10.4%
• Income from operations was 8.4% of revenues

Outlook

Based on FY 2018’s second-quarter-end backlog and the pace of activity at its communities, the Company now estimates it will deliver between 8,000 and 8,500 homes in FY 2018, compared to previous guidance of 7,800 and 8,600 units. It now believes the average delivered price for FY 2018 will be between $830,000 and $860,000 per home. This translates to projected revenues of between $6.64 billion and $7.31 billion in FY 2018, compared to $5.82 billion in FY 2017.

“We project third-quarter end community count to be approximately 290, down from 312 at last year’s third-quarter end, but up from 283 at FY 2018 second quarter-end. With 75 planned new community openings in the back half of FY 2018, we project a FYE 2018 community count of approximately 315, compared to 305 at FYE 2017.

“Based on this projected increase in community count, our record second-quarter backlog, the quality of our brand and land portfolio, the financial strength of the affluent home buyer and the breadth of demographic segments we serve, we believe FY 2019 will be another year of growth as well.”

Martin P. Connor, Toll Brothers’ chief financial officer, stated: “We continue to focus on improving our Return on Equity (ROE) and driving value for shareholders, while maintaining our profit margins and balance sheet flexibility. In April, we increased our dividend 38% from $0.08 per quarter to $0.11 per quarter. We have also repurchased $291.5 million of stock to-date in FY 2018.

“Our rental apartment business continues to grow. We now control a pipeline of approximately 16,000 units in projects completed, in construction, under development or in approvals. We are expanding this operation beyond our metro Boston to Washington, D.C. base and now have teams in San Francisco, Los Angeles, Atlanta, Dallas and Phoenix.”

Robert I. Toll, executive chairman, stated: “Jobs are plentiful, unemployment is low, wages are rising and existing home price appreciation is providing the equity for customers to buy new homes. Home ownership and household formation rates are increasing, while supply remains constrained. With our solid land positions and the capital to expand, we are gaining market share and look forward to continued growth.

“Just yesterday, we were included once again in the Fortune 500. I am so proud of the tremendous effort of the entire Toll Brothers team. This recognition reflects their dedication to building our brand, and their focus on providing the highest quality, value and service to our customers.”

GUIDANCE:

Toll Brothers sees FY2018 revenue of $6.6-7.31 billion, versus the consensus of $6.97 billion.

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

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