Toll Brothers Q2 earnings miss Street’s expectations

Luxury homes builder Toll Brothers (TOL) reported a 10.3% drop in earnings for the second quarter due to higher selling, general and administrative expenses and an increase in pre-tax inventory write-downs as well as a dip in income from unconsolidated entities. Despite revenue exceeding consensus, earnings missed Street’s expectations.

Net income fell to $111.8 million or $0.72 per share from $124.6 million or $0.73 per share a year ago. This was due to 94% dip in income from unconsolidated entities that arose from the sale of condominiums at Pierhouse at Brooklyn Bridge Park joint venture and the sale of a portion of the membership interest in The Morgan at Provost Square.

However, quarterly revenue grew 17% to $1.60 billion, helped by a 15% growth in home building deliveries, which stood at 1,886 units. Net signed contract value increased 18% to $2.38 billion as contract units rose by 6%. Backlog value at the end of second-quarter climbed 27% to $6.36 billion as units grew 17% to 7,030.

California revenues rose 17% and it was the company’s largest revenue-generating region, producing 27% of total revenues. The North, the Mid-Atlantic, the South, the West and City Living regions were up 19%, 13%, 23%, 15%, 17%, respectively. California and the Western region, combined, produced nearly 50% of total revenues, reflecting the strategic diversification of the company’s operations over the past decade.

Looking ahead into fiscal 2018, the Horsham, Pennsylvania-based company expects to deliver 8,000 to 8,500 units with an average price of between $830,000 and $860,000. Toll Brothers predicts adjusted gross margin of 23.75-24.25% of revenues, selling, general and administrative expenses as a percentage of revenue of about 10%, and other income and income from unconsolidated entities of $130-$160 million. The tax rate is projected to be 23-25% for the full-year.

For the third quarter, Toll Brothers expects deliveries of 2,100 to 2,200 units with the average price ranging between $830,000 and $850,000. The company sees adjusted gross margin of 23.4%, SG&A of about 9.6%, and a tax rate of about 27.5%. Other income and income from unconsolidated entities are predicted to be about $20 million for the third quarter.

“Jobs are plentiful, unemployment is low, wages are rising and existing home price appreciation is providing the equity for customers to buy new homes. Home ownership and household formation rates are increasing, while supply remains constrained. With our solid land positions and the capital to expand, we are gaining market share and look forward to continued growth,” said executive chairman Robert Toll.

Shares of Toll Brothers ended Monday’s regular trading session by increasing 1.09% at $43.63 on the NYSE and slid 4% before the bell today on missing earnings estimates. The stock had been trading between $36.55 and $52.73 for the past 52 weeks.