Toll Brothers Q3 Profit Drops, Sees Greater Demand For Homes

(RTTNews) - Luxury home builder Toll Brothers, Inc. (TOL) Tuesday said its third-quarter profit declined from the prior year, amid a slide in revenues. The company said that as the employment scenario continues to improve, greater demand should lead to rising home prices, which should encourage more people to sell their existing homes and move up or add a second home.

Robert Toll, executive chairman, said, "An improving employment landscape, three consecutive quarters of accelerating household formations, pent-up demand, increasing rents and still attractive affordability are supporting the for-sale housing market's steady recovery."

" We believe that, as the job picture continues to improve, greater demand should lead to rising home prices, which should encourage more people to sell their existing homes and move up or add a second home. Based on these and other factors, we believe the housing market remains on an upward trend and has considerable room to grow."

Net income for the quarter fell to $66.75 million or $0.36 per share from $97.7 million or $0.53 per share reported last year.

On average, 18 analysts polled by Thomson Reuters expected the company to report earnings per share of $0.49 for the quarter. Analysts' estimates typically exclude special items.

Pre-tax income dropped to $107.5 million from $151.3 million. The latest results included impairments of $18 million and a $4.9 million net increase in reserves, compared to impairments of $6 million and a reserve reversal of $7 million last year.

Gross margin fell to 19.8 percent from last year's 22.7 percent. Excluding interest, impairments and changes in reserves, gross margin was 25.6 percent, while it totaled 26.1 percent last year.

Revenues slid to $1.03 billion from $1.06 billion. Analysts expected revenue of $1.05 billion for the quarter.

Home building deliveries dropped 2 percent to 1,419 units. The average price of homes delivered was $724,000, compared to $732,000 in the prior year.

Net signed contracts jumped 30 percent to $1.23 billion, and increased 12 percent to 1,479 units.

The average price of net signed contracts was $834,000, the highest quarterly average in the company's history, driven by an increase in the number and average price of California contracts.

For the first four weeks of August, net contracts increased 16 percent in units.

Toll Brothers ended its third quarter with 267 selling communities, compared to 269 at second-quarter end, and 256 at prior-year. The company expects to end the year with 270 to 285 selling communities.

The company expects fourth quarter deliveries of between 1,645 and 1,945 units with an average price of $780 thousand to $800 thousand.

Full year deliveries are projected to be between 5,350 and 5,650 units with an average delivered price of between $745 thousand and $760 thousand.

Further, Toll Brothers said its rental apartment business continues to outperform its expectations. The firm is currently leasing up three new communities totaling about 1,100 units. They are all leasing at faster paces and higher rents than the builder had originally projected.

The stock fell 4.7 percent on Monday to close at $38.06.