Toll Brothers (NYSE: TOL) reported Q3 EPS of $0.87, $0.18 better than the analyst estimate of $0.69. Revenue for the quarter came in at $1.5 billion versus the consensus estimate of $1.51 billion.

• FY 2017’s third-quarter net income was $148.6 million, or $0.87 per share diluted, compared to net income of $105.5 million, or $0.61 per share diluted, in FY 2016’s third quarter.
• Pre-tax income was $203.6 million, compared to pre-tax income of $163.7 million in FY 2016’s third quarter. Third-quarter FY 2017 included inventory write-downs of $2.4 million, compared to $3.7 million in FY 2016’s third quarter.
• FY 2017’s third-quarter tax expense was positively impacted by a net $27.9 million benefit associated primarily with the reversal of a state deferred tax asset valuation allowance.
• Revenues of $1.50 billion and home building deliveries of 1,899 units increased 18% in dollars and 26% in units, compared to FY 2016’s third quarter. The average price of homes delivered was $791,400, compared to $842,700 one year ago. The drop in average price was due to a change in mix, as was expected.
• Net signed contracts of $1.81 billion and 2,163 units rose 25% in dollars and 24% in units, compared to FY 2016’s third quarter. The average price of net signed contracts was $837,300, compared to $830,800 one year ago.
• This was the Company’s twelfth consecutive quarter of year-over-year growth in contract dollars and units, including 20% or higher year-over-year unit growth in each of the past four quarters.
• On a per-community basis, FY 2017’s third-quarter net signed contracts were 6.89 units per community, compared to a third-quarter total of 5.85 in FY 2016. This was the 11th consecutive quarter of improved contracts per community, compared to the prior year’s same quarter.
• Backlog of $5.31 billion and 6,282 units rose 21% in dollars and units, compared to FY 2016’s third-quarter-end backlog. The average price of homes in backlog was $845,100, compared to $844,300 one year ago.
• Gross margin was 21.7% of revenues in FY 2017’s third quarter, compared to 21.9% in FY 2016’s third quarter. Adjusted gross margin, which excludes interest and inventory write-downs (“Adjusted Gross Margin”), was 25.0% of revenues, compared to 25.3% in FY 2016’s third quarter.
• SG&A, as a percentage of revenues, was 10.3% in FY 2017’s third quarter, compared to 10.6% in FY 2016’s third quarter.
• Other income and Income from unconsolidated entities totaled $31.9 million, compared to $20.1 million one year ago.
• The Company ended its third quarter with 312 selling communities, compared to 316 at FY 2017’s second-quarter end and 297 at FY 2016’s third-quarter end.
• During the third quarter of FY 2017, the Company repurchased approximately 1.9 million shares of its common stock at an average price of $39.02 per share for a total purchase price of approximately $75.3 million.
• On June 12, 2017, the Company issued an additional $150 million of its 4.875% Senior Notes due 2027, priced at a yield of 4.4%.
• On August 15, 2017, the Company notified holders that it had elected to redeem its 0.5% convertible securities due 2032. These bonds will be retired with a $287.5 million payment on September 15, 2017, resulting in the elimination of approximately 5.9 million shares from the Company’s fully diluted share count.
• The Company now estimates it will deliver between 7,000 and 7,300 homes in FY 2017, compared to previous guidance of 6,950 to 7,450 units, at an average delivered price for FY 2017’s full year of between $800,000 and $825,000 per home. This translates to projected revenues of between $5.6 billion and $6.0 billion in FY 2017, compared to $5.17 billion in FY 2016.
• The Company’s full FY 2017 and fourth-quarter delivery projections reflect approximately 150 homes that it had estimated would be delivered in FY 2017 but will instead be delivered in FY 2018 due to the floor joist recall by a major lumber manufacturer.
• The Company expects FY 2017 fourth-quarter deliveries of between 2,275 and 2,575 units with an average price of between $840,000 and $860,000.
• The Company has updated its previous guidance for full FY 2017 Adjusted Gross Margin to between 24.8% and 25.0% of revenues, for SG&A to 10.4% of revenues, for Other income and Income from unconsolidated entities to between $160 million and $180 million and for its effective tax rate to approximately 35.0%.
• The Company expects its fourth-quarter FY 2017 Adjusted Gross Margin to improve 35 to 50 basis points from FY 2017’s third-quarter results.
• FY 2017, fourth-quarter SG&A is expected to be approximately 8.0% of fourth-quarter revenues.
• The Company’s fourth-quarter FY 2017 Other income and Income from unconsolidated entities is projected to be between $10 million and $30 million.
• The FY 2017 fourth-quarter effective tax rate is projected to be approximately 38.0%.
• Due to the strong pace of sales at many of its current communities, the Company is selling through some communities more quickly than anticipated and now expects to end FY 2017 with between 300 and 310 selling communities.
• The Company ended FY 2017’s third quarter with approximately 47,800 lots owned and optioned, compared to 46,600 one quarter earlier, and 48,700 one year earlier. At FY 2017’s third-quarter end, approximately 32,400 of these lots were owned, of which approximately 17,600 lots, including those in backlog, were substantially improved.

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