Toll Brothers (NYSE: TOL) reported Q3 EPS of $1.26, $0.23 better than the analyst estimate of $1.03. Revenue for the quarter came in at $1.91 billion versus the consensus estimate of $1.81 billion.

• Net income was $193.3 million, or $1.26 per share diluted, compared to net income of $148.6 million, or $0.87 per share diluted, in FY 2017’s third quarter
• Pre-tax income was $253.1 million, compared to $203.6 million
• Other income and Income from unconsolidated entities was $23.4 million, compared to $31.3 million
• Revenues were $1.91 billion – up 27%; home deliveries were 2,246 units – up 18%
• Net signed contracts value was $2.03 billion – up 12%; contract units were 2,316 – up 7%
• Per-community net signed contracts were 8.10 units per community – up 18%
• Backlog value at third-quarter end rose to $6.48 billion – up 22%; units totaled 7,100 – up 13%
• Gross margin, as a percent of revenues, was 21.1%
• Adjusted Gross Margin, which excludes interest and inventory write-downs (“Adjusted Gross Margin”), was 24.3%
• Inventory write-downs were $11.1 million, compared to $2.4 million
• SG&A, as a percentage of revenues, was 9.1%
• Income from operations was 12.0% of revenues

Douglas C. Yearley, Jr., Toll Brothers’ chief executive officer, stated: “We had an outstanding quarter with earnings per share, net income, pre-tax income and income from operations rising 45%, 30%, 24% and 33%, respectively, compared to one year ago. Revenues of $1.91 billion were up 27%, our highest third quarter ever, driven by strong revenue growth in our California, West, South, Mid-Atlantic and North regions.

“We achieved 12% growth in the value of new contracts signed, which, at $2.03 billion, was the highest for any third quarter in our history. Record third-quarter contracts and a third-quarter-end backlog, up 22% in dollars from one year ago, indicate revenue and earnings growth in FY 2019.

“On a per-community (same store) basis, contracts of 8.1 were the highest for a third quarter in over a decade, and up 18% compared to FY 2017. Our community count grew from 283 at second-quarter end to 301 at third-quarter end but still lagged FY 2017’s 312 at third-quarter end. We expect to reach approximately 315 selling communities by FYE 2018, which should give us a strong start for FY 2019. And we expect further community count growth by FYE 2019.

“The value of contracts in the West, South and Mid-Atlantic regions and in our City Living division were all up at least double digits while the North region was essentially flat. In California, contracts were down 1% in dollars and 4% in units. Contracts per-community in California declined from 11.3 in FY 2017’s third quarter to 10.0 this quarter. However, contracts per-community in California were still well-ahead of the company-wide average of 8.1. While California is not as hot as a year ago, it is still one of our stronger markets. Compared to one year ago, backlog in California was up 55% in value at third-quarter end. Most of this backlog will be delivered in FY 2019.

“Our double-digit growth in revenues, contracts and backlog and our strong earnings reflect the health of the new home industry in general and our unique position in the luxury market. Through our customization program, our buyers are adding, on average, $165,000 in lot premiums and structural and designer options to their homes. We are also benefiting from the quality of our brand, the diversity of our product lines and our attractively-located land pipeline across approximately 50 markets. In the current supply-constrained housing environment, we are well-positioned to grow.”

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