The luxury homebuilder of the U.S., Toll Brothers (TOL, Financial) reported its fourth-quarter earnings for the fiscal year ended October 31, and it surprised analysts by exceeding the revenue expectations but missed the bottom line predictions for the quarter. The strong demand in the builder’s West Coast division, aided to lift its revenue for the quarter, but the fourth-quarter profit fell short of Street’s view hurt by inventory impairments and an increase in reserves. Let’s dig deeper and find out the major highlights that were shared during the earnings call on December 10 by the key management.
Improvement of housing demand drives the top line
During the final quarter of the fiscal year, home deliveries jumped 22% to 1,807 units. The average price of homes delivered was $747,000, up from $703,000 in the prior-year period. Such positivity in the home purchase market drove the company’s revenue to $1.35 billion in the quarter, up from $1.04 billion reported a year earlier and surpassing the Wall Street forecast of $1.32 billion for the quarter.
For the coming fiscal year, based on such positive tailwinds currently present in the U.S. economy, Toll Brothers anticipates delivering between 5,000 to 6,000 homes at an average price of between $710,000 and $760,000 per home. The management stays upbeat on achieving the higher end of the range next year, as improvement of demand has been noticed in the housing sector since August this year.
While speaking on the U.S. housing sector, CEO Douglas C. Yearley Jr., stated during the earnings call, “We expect the group to incur about $1 billion of non-operating restructuring charges over the next five quarters, including the current quarter…”
Profit shows a surge but misses the crown
The home builder reported a 39% surge in the fiscal fourth-quarter earnings benefited by the gradual recovery in the housing market. Recovery of the U.S. housing market was more or less tepid this year, despite initial expectations that it would boost the overall economy.
While sales of previously owned houses rebounded after a weak start to the year, new home sales barely trended above last year’s soft levels, and construction market growth was flattish for the year. But the company’s profit surge could be attributed to the lower interest rates which helped to post strong results amid the housing market’s lacklustre overall performance.
For the quarter, Toll Brothers which offers higher-end products posted a profit of $131.5 million, or $0.71 a share, compared with a profit of $94.9 million, or $0.53 a share, a year ago. However, it grossly missed the Thomson Reuters analyst consensus of $0.73 a share.
Gross margins slightly up, investor rewards continue
The company’s pretax income was $188.5 million for the quarter, up from $150.2 million a year earlier. The gross margin edged up to 25.5% from 25.4% registered earlier, excluding interest and writedowns.
Irrespective of missing the bottom-line forecast, the company remains investor-friendly by repurchasing 2.94 million shares of its common stock at an average price of $30.78 for a total purchase price of $90.4 million.
Last word
Being the nation’s leading builder of luxury homes, Toll Brothers knows how to keep the investors happy when there are headwinds to face in a quarter. Also, the home builder is well acquainted with taking the benefit of the macro-environmental conditions as and when they apply during the quarter. Truly, the home building revival in the U.S. was mainly responsible for a surge in the sales chart for Toll Brother which it expects to see newer heights in the near future.
