Toll Brothers (NYSE: TOL) reported Q4 EPS of $2.08, $0.25 better than the analyst estimate of $1.83. Revenue for the quarter came in at $2.46 billion versus the consensus estimate of $2.35 billion.

Douglas C. Yearley, Jr., Toll Brothers’ chairman and chief executive officer, stated: “In FY 2018, we produced the highest revenues, contract value, and earnings per share in our 51-year history. In addition, our net income, home deliveries, contracts (in units) and year-end backlog (in dollars and units) were the highest in over a decade. Our return on beginning equity grew from 12.7% in FY 2017 to 16.5% in FY 2018. And our fourth quarter revenues, net income and earnings per share were the highest for any quarter in our history.

“Compared to FY 2017, our FY 2018 net income and earnings per share rose 40% and 53%, our revenues and deliveries grew 23% and 16%, our contracts increased 11% in dollars and 4% in units, and our backlog rose 9% in dollars and 4% in units. FY 2018 fourth quarter net income and earnings per share rose 62% and 78%, while revenues and deliveries rose 21% and 12%.

“In our fourth quarter, despite a healthy economy, we saw a moderation in demand. Fourth quarter contracts declined 15% in dollars and 13% in units compared to a difficult comp from one year ago. Fourth quarter demand slowed to a per community pace more consistent with FY 2016’s fourth quarter, which was still strong.

“In November, we saw the market soften further, which we attribute to the cumulative impact of rising interest rates and the effect on buyer sentiment of well-publicized reports of a housing slowdown. We saw similar consumer behavior beginning in late 2013, when a rapid rise in interest rates temporarily tempered buyer demand before the market regained momentum.

“California has seen the biggest decline. Significant price appreciation over the past few years, fewer foreign buyers in certain communities, and the impact of rising interest rates all contributed to this slowdown. But California is the world’s fifth largest economy with diverse, job-creating industries, including vibrant technology companies, a large concentration of wealth, and desirable lifestyle options. With our attractive coastal California land, our leading brand, and the state’s constrained supply of housing, we continue to believe in our long-term position in the California market.

“There are many positive factors underpinning the economy that we believe are supportive of the housing sector longer-term, and our affluent markets particularly. Household formations are increasing. The nation is experiencing the lowest unemployment rate in many decades. In the past few years, many of our customers have enjoyed wealth creation through the stock market, home price appreciation, and salary increases. The industry’s fundamentals remain solid, the economy remains strong and consumer confidence is near record levels.

“Moreover, equity in existing homes is at an all-time high, providing significant liquidity for current home owners who want to upgrade to a new home. The average age of the stock of existing homes in the U.S. is nearly 40 years, its oldest ever. As the only national home builder focused on the upscale market, Toll Brothers’ homes stand out against these older homes. We offer designs for today’s lifestyle, extensive opportunities to customize, integrated technology, energy efficiency, and ease of maintenance.

“Toll Brothers is well-positioned to take advantage of this strong economy, improving demographics and the financial health of our affluent customer base. We enter FY 2019 with a tremendous brand, a broad geographic footprint and diverse product offerings, a well-located land portfolio in high-quality markets, and a strong balance sheet. Most importantly, we have a tremendous team of Toll Brothers associates who made FY 2018’s record results possible and are preparing us for a bright future.”

Martin P. Connor, Toll Brothers’ chief financial officer, stated: “Our fourth quarter earnings exceeded our expectations, driven by strong revenues fueled by a rise in average delivered price, improved SG&A leverage and favorable tax results.

“Our balance sheet is solid with ample liquidity. We ended our fourth quarter with $1.18 billion of cash and marketable securities and $1.13 billion available under our revolving bank credit facility, for total liquidity of over $2.3 billion.

“On November 1st, 2018, we extended the maturity of our term loan to November 1, 2023, increased the facility from $500 million to $800 million and reduced the interest rate by 10 basis points. On November 30, we retired $350 million of 4.00% senior notes. Today, our weighted average debt maturity is 5.4 years, our weighted average interest rate is 4.62% and we have only $250 million of public debt maturing in the next 39 months. With a favorable liquidity position and the strength of our balance sheet, we believe we are very well positioned for the future.

“Current market conditions create a wide range of possible scenarios for our full year results. While we are targeting modest community count growth by FYE 2019, we have limited our forward-looking income statement guidance to the first quarter of 2019.”

Robert I. Toll, founder and chairman emeritus, stated: “New home production this cycle has not yet reached even the annual average, dating back nearly 40 years. With the broader economy healthy, we plan to continue to pursue growth as we expand and diversify our products.”

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