Toll Brothers (TOL) Tops Q2 Earnings & Revenues, Updates View

Toll Brothers, Inc. (NYSE:TOL) reported adjusted earnings of 73 cents per share in the second quarter of fiscal 2017, beating the Zacks Consensus Estimate of 62 cents by 17.7%. Adjusted earnings also improved 43.1% year over year.

The company reported revenues of $1.36 billion in the fiscal second quarter, surpassing the consensus mark of $1.25 billion by nearly 9%. Revenues were up 21.4% year over year.

Quarter Detail

Toll Brothers operates under two segments – Traditional Home Building and City Living.

Traditional Home Building revenues during the quarter totaled $1.29 billion, up 21.7% year over year while City Living revenues of $76.6 million rose 41.9%, courtesy of a higher number of homes delivered.

Inside the Headline Numbers

Consolidated homebuilding deliveries rose 26% year over year to 1,638 units in the second quarter of fiscal 2017. Deliveries increased across all West, North and Mid-Atlantic, California and South regions.

Average price of homes delivered was $832,400 in the quarter, down 2.7% year over year due to changes in the mix.

The number of net signed contracts was 2,511 units in the second quarter, up 26% year over year. Value of net signed contracts during the quarter was $2.02 billion, up 23% year over year. This marks the eleventh consecutive quarter of year-over-year growth in contracts.

At the end of the fiscal second quarter, Toll Brothers had a backlog of 6,018 homes, up 22% year over year. Potential housing revenues from backlog grew 19% year over year to $5 billion. The average price of backlog was $831,000 in the second quarter, compared with $848,600 in the prior-year quarter.

The company’s homebuilding adjusted gross margin declined 140 basis points (bps) to 24.3% in the quarter under review.

As a percentage of revenues, SG&A expenses contracted to 10.8% from 11.5% in the second quarter of fiscal 2016.

Financials

Toll Brothers had $691.3 million in cash as on Apr 30, 2017, compared with $423.2 million at the end of second-quarter fiscal 2016 and $633.7 million as on Oct 31, 2016.

Third-Quarter Outlook

The company expects home deliveries between 1,675 and 1,975 units (previously 1,350 –1,650) in the third quarter of fiscal 2017 at an average price of $790,000 to $815,000 (previously $810,000–$835,000).

Adjusted gross margin in the third quarter is expected to improve by 10 bps.

Toll Brothers Inc. Price, Consensus and EPS Surprise

Third-quarter fiscal 2017 SG&A expenses are estimated at approximately 10.4% (earlier 11.4%) of revenues. SG&A expenses, as a percentage of fiscal 2017 revenues, are still expected at around 10.6%.

Fiscal 2017 Outlook

For fiscal 2017, home deliveries are anticipated in the range of 6,950 to 7,450 units (previously 6,700–7,500) at an average price of $775,000–$825,000.

Revenues are projected between $5.4 billion and $6.1 billion (previously $5.19 billion to $6.19 billion) for fiscal 2017, compared with $5.17 billion in fiscal 2016.

Toll Brothers reaffirmed its adjusted gross margin expectation at the 24.8–25.3% band for fiscal 2017.

Zacks Rank & Stocks to Consider

Toll Brothers carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the industry include Lyon William Homes (NYSE:WLH) , M/I Homes, Inc. (NYSE:MHO) and KB Home (NYSE:KBH) .

Lyon William and M/I Homes sport a Zacks Rank #1 (Strong Buy). Full-year 2017 earnings for Lyon William are expected to increase 38.2% while that of M/I Homes is likely to rise 36.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home, a Zacks Rank #2 stock, is expected to witness 43.2% growth in fiscal 2017 earnings.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>