U.S. luxury home builder, Toll Brothers Inc. (TOL, Financial), is said to have reported a 78% jump on higher home sales and prices. The largest U.S. luxury-home builder has earned quarterly profits more than the expected estimates. In the first fiscal 2015 quarter, the company earned $835.5 million in revenue. This was a 33% increase in the earnings from the same quarter last year. Revenue for the quarter also exceeded the Street's expectations of $773.5 million. The gross profit margin-- excluding interests as write-downs for the first fiscal 2015 quarter--increased from 24.4% last year to 27.3% this year.
Soon after the results were out, the stock started taking an upward trajectory and continued to climb even after the opening bell. Let’s jump directly into the figures and try to get a glimpse into the financial playbook of Toll Brothers for this quarter.
Earnings growth was phenomenal, new orders take shape
The net income reported for the first quarter stood at $0.44 a share, or $81.3 million. The same quarter last year reported a net income of $45.6 million, or $0.25 a share. According to data complied by Bloomberg, the average of around fourteen analysts was $0.28 per share for the quarter. Hence, the company not only reported an increase by a whopping 78% in net income for the quarter on a year-over-year basis, it also surpassed the analysts’ consensus in terms of EPS growth for the first quarter.
The company also reported an improvement in net signed contracts or new orders. These net signed contracts rose 24% in terms of dollars valued at $873.2 million and climbed 16% in units to 1,063. Average home prices for the luxury home builder jumped to $782,300 for the 1,091 units delivered during the quarter, up 13% in value from last year.
The key driving factors
CEO Douglas Yearley, stated that Toll Brothers Inc's presence in various locations has given them an ultimate advantage. He emphasized that the geographical diversification strategy has worked wonders for the home builder, especially since Toll Brothers has also expanded its brand’s presence in the West and the South of the U.S. and in urban areas. He further discussed upon the pricing power of the company which has also been an enabler for reaching better earnings during the quarter.
Under the management of Douglas Yearley, Toll Brothers has diversified into high-rise condominium construction as well as apartment construction. The company's customer base has also expanded to coastal California, Florida, as well as Atlantic states. Notably in the first quarter, the Californian operations aided to produce nearly 29% of the value of Toll Brother’s signed contracts at an average price of $1.1 million.
Future outlook looks impressive in the long run
Latest release from National Association of Realtors states that home prices will continue to show appreciation. In a statement, Robert Toll, Chairman of Toll Brothers' said that their consumers who sell their home to buy bigger homes, will now have more money to invest in new homes.
The housing market is a bright spot right now as per data from the Labor Department and the recent ‘confidence report’ by the Conference Board, which is indicative of the consumer confidence, reaching the highest level in January this year, since August 2007. In fact, positive macroeconomic trends, coupled with the federal government speedy initiatives to increase mortgage availability, will possibly aid in the quick recovery of the housing sector.
Due to presence of such tailwinds, Toll Brothers has now raised the full-year delivery and pricing guidance. It has upgraded its full-year delivery projection from 5,000-6,000 homes to 5,200-6,000 new homes at the average price of $725,000-$760,000, over and above the price projection of $710,000-$760,000 stated earlier.
Final word
The first quarter of the fiscal year 2015 paves the way to a new start for the luxury home builder, and the fabulous numbers posted in the quarter speak phenomenally on the strength of the housing sector in the U.S. which is presently on the path of recovery after the housing crisis. Let’s keep a watch on how Toll Brothers performs in the upcoming quarters when the housing sector would be in a much better form.
