Toll Brothers shares sink as California demand dwindles amid trade war

(Reuters) - Shares of Toll Brothers (NYSE: TOL) fell more than 6% on Wednesday after the U.S. luxury homebuilder reported a 36% collapse in orders in California, where other sector players have signaled waning demand from affluent Chinese buyers in light of President Donald Trump's trade war.

In June, the No.2 U.S. homebuilder Lennar Corp (NYSE: LEN) flagged weakness in the region and warned that more tariffs on Chinese imports could increase raw material costs and dent margin.

As the trade war continues to stoke fears of a recession, analysts say they expect California deceleration to hurt Toll's full-year 2020 top line and margins given the nine to 12 months delivery cycle on orders.

"The revenue mix from California (for Toll) will likely decline through fiscal 2020. This is the biggest impediment for the stock, in our view," said RBC Capital Markets analyst Mike Dahl.

Toll's customers include high net worth individuals who are more sensitive to stock market volatility compared to builders such as D.R. Horton (NYSE: DHI) which targets first-time buyers.

California made up about 30% of Toll's home sales in the nine months ended July 31, for fiscal year 2019.

Click here to view the interactive graphic: https://fingfx.thomsonreuters.com/gfx/editorcharts/TOLL%20BROTHERS-STOCKS/0H001QERK80L/index.html

(Reporting by Sanjana Shivdas and Ankit Ajmera in Bengaluru; Editing by Shinjini Ganguli)

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