Toll Brothers (NYSE: TOL) reported Q1 EPS of $0.41, $0.04 worse than the analyst estimate of $0.45. Revenue for the quarter came in at $1.33 billion versus the consensus estimate of $1.45 billion.

Second Quarter and Full FY 2020 Financial Guidance:

• Second quarter deliveries of between 1,850 and 2,050 units with an average price of between $800,000 and $820,000.
• Fiscal Year 2020 deliveries of between 8,600 and 9,100 units with an average price of between $800,000 and $820,000.
• Second quarter Adjusted Home Sales Gross Margin of approximately 20.50%.
• Fiscal Year 2020 Adjusted Home Sales Gross Margin of approximately 21.25%.
• Second quarter SG&A, as a percentage of home sales revenues, of approximately 12.4%.
• Fiscal Year 2020 SG&A, as a percentage of home sales revenues, of approximately 11.4%.
• Community count growth of approximately 10% by FYE 2020 compared to FYE 2019.
• Fiscal Year 2020 SG&A expense reflects costs in advance of revenues from staffing and advertising associated with the planned increase in community openings.
• Second quarter other income, income from unconsolidated entities, and land sales gross profit of approximately $5 million.
• Fiscal Year 2020 other income, income from unconsolidated entities, and land sales gross profit of approximately $115 million.
• Second quarter tax rate of approximately 26.0%.
• Fiscal Year 2020 tax rate of approximately 25.0%.

Douglas C. Yearley, Jr., Toll Brothers’ chairman and chief executive officer, stated: “Our first quarter contracts were up 31% in units and 28% in dollars, and our contracts per-community were up 28%, compared to one year ago. We saw improvement in California with contracts up 32% in units and 10% in dollars. Demand has remained strong through the start of our second quarter and we are experiencing pricing power in many of our markets.

“Revenues were below guidance in our first quarter, as some deliveries slipped into our second quarter. Our guidance for deliveries for FY 2020 is between 8,600 and 9,100 homes, at an average price of between $800,000 and $820,000 per home. The adjusted gross margin in the first half of FY 2020 will continue to reflect the challenging sales environment we experienced through the third quarter of FY 2019. We expect our adjusted gross margin in FY 2020’s second half to improve by approximately 100 basis points over the first half, reflecting the improved selling environment that began in late FY 2019. The more recent growth in contracts and absorptions, increase in pricing power, and our projected 10% community count expansion should contribute to margin and earnings improvement in FY 2021.

"We are committed to improving our return on equity through capital efficient land acquisitions, more quicker-turn affordable luxury communities, dividend payments, and share repurchases. In the first quarter of FY 2020 we repurchased $476 million of stock at an average price of $40.73 per share, which reduced our share count by 11.7 million shares, or 8%, from FYE 2019. We expect share repurchases to remain a significant component of our capital allocation strategy. Importantly, our strong balance sheet allows us to both continue to repurchase shares and grow our business through land purchases and selective homebuilder acquisitions in promising markets, such as our recent purchases of Sharp Residential in Atlanta, Sabal Homes in South Carolina, and Thrive Residential in Atlanta and Nashville.

"Single-family permits rose in January to the highest seasonally adjusted annual pace since June 2007. Even so, housing supply remains tight. Interest rates remain historically low, consumer confidence is healthy, household formations are strong, and unemployment is at or near record lows. According to the January existing home sales report from the National Association of Realtors, the growth in existing home sales was strongest in the $500,000 to $750,000 price range. With this positive macro backdrop, market fundamentals remain supportive as we continue to expand our luxury brand to new price points, product lines, and geographies."

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