Toll Brothers Q4 Profit Declines, Yet Tops View; Sees Growth Ahead

(RTTNews) - Luxury homebuilder Toll Brothers Inc. (TOL) reported Tuesday a sharp decline in fourth-quarter profit, reflecting significant reduction in tax asset valuation allowance reversal. Earnings per share, however, topped analysts' estimates, and pre-tax earnings grew 147 percent from last year, as revenues were benefited with strong growth in home deliveries and selling prices.

Chief Executive Officer Douglas Yearley, Jr. said, "... FY 2013 was an excellent year for Toll Brothers. As we look forward to FY 2014, we see our revenues and community count growing, margins improving and our profitability increasing."

For the fourth quarter, net income declined to $94.91 million or $0.54 per share from $411.42 million or $2.35 per share a year ago. On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $0.43 per share for the quarter. Analysts' estimates typically exclude special items.

The latest-quarter results included a deferred tax asset valuation allowance reversal of $4.6 million, compared to a deferred tax asset valuation allowance reversal of $394.7 million last year.

The company's pre-tax income was $150.15 million, significantly higher than $60.75 million in the prior year.

Revenues grew 65 percent to $1.04 billion from $632.83 million in the prior year quarter. Twenty analysts had consensus revenue estimate of $1.00 billion for the quarter. Homebuilding deliveries in the quarter were 1,485 units, 36 percent higher than the previous year.

Gross margin, excluding interest and write-downs, was 25.4 percent, compared to 24.6 percent a year ago. Operating margin improved to 12.3 percent from 8.3 percent last year.

The company's net signed contracts rose 23 percent year-over-year to $839 million, with a 6 percent rise in units to 1,163 units. The average price of homes delivered was $703 thousand, compared to $582 thousand a year ago.

Yearley, Jr. said, "In our fourth quarter, the impact of those price increases, combined with uncertainty from the political discord in Washington and a sudden rise in interest rates, contributed to a leveling of demand."

Cancellation rate, that denotes current-quarter cancellations and signed contracts, was 5.5 percent, compared to 4.6 percent in 2012.

The company's backlog at the end of the period was $2.63 billion and 3,679 units, a growth of 57 percent in dollars and 43 percent in units from the previous year.

Regarding the current trading, the company noted that it is now six weeks into first quarter of fiscal 2014, and in the most recent five weeks, contracts have been flat to last year.

In the first week of the year, Toll Brothers signed 77 contracts, compared to 149 in the same period last year, as Hurricane Sandy shut down sales in many of its markets during the last weekend of October and pushed contracts to the first week of November.

Looking ahead for fiscal 2014, Toll Brothers currently estimates delivery of 5,100 to 6,100 homes, with average delivered price between $670 thousand and $720 thousand per home, based on its backlog, the lowest cancellation rate in its industry, and the pending acquisition of Shapell.

The company expects to end the new year with between 250 and 290 selling communities, compared to 232 selling communities at the end of 2013.

Toll Brothers closed Monday's trading at $33.58, up $0.69 or 2.10 percent.