A month has gone by since the last earnings report for Toll Brothers (TOL Quick QuoteTOL - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Toll Brothers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Toll Brothers Q4 Earnings & Revenues Beat, Demand High

Toll Brothers, Inc. reported impressive results for fourth-quarter fiscal 2021 (ended Oct 31, 2021). Both the top and bottom lines topped the Zacks Consensus Estimate as well as increased significantly on a year-over-year basis. The company has been benefiting from the strategy of broadening the product lines, price points and geographies.

Douglas C. Yearley, Jr., chairman and chief executive officer, said, “We, like the rest of the industry, continue to be challenged by significant supply chain and labor constraints that are extending delivery times for our homes. Notwithstanding these issues, which we expect to continue for the foreseeable future, we project 20% revenue growth in FY 2022.”

Earnings & Revenue Discussion

This leading luxury homebuilder reported earnings of $3.02 per share, which surpassed the Zacks Consensus Estimate of $2.48 by 21.8% and increased a whopping 94.8% from the year-ago period.

Total revenues (including Home sales, and Land sales and other) came in at $3.04 billion, which beat the consensus mark of $2.91 billion by 4.4% and rose 19.5% year over year. The uptrend was backed by solid demand during the quarter.

Segment Detail

Toll Brothers operates under two reportable segments, namely Traditional Home Building and Urban Infill ("City Living").

Revenues from Traditional Home Building totaled $2.83 billion, up 14.2% year over year, and that of City Living increased more than almost 572% to $120.9 million.

Inside the Headline Numbers

Home sales revenues grew 18% from the prior year to $2.95 billion. Homes delivered grew 14% year over year to 3,341 units. Deliveries increased in all regions served by the company (barring North). The average price of homes delivered was $883,100 for the quarter, up from the year-ago level of $849,000.

The number of net signed contracts for the reported quarter was 2,957 units, down 13% year over year. The value of net signed contracts was $3 billion, reflecting a rise of 10% from the year-ago quarter.

At fiscal fourth quarter-end, Toll Brothers had a backlog of 10,302 homes, representing a 32% year-over-year increase. Also, potential revenues from backlog improved 49% year over year to $9.5 billion. The average price of homes in backlog totaled $922,100, up from $818,200 at the end of fourth-quarter fiscal 2020.

Cancellation rate for the reported quarter was 4.6% compared with 5.4% in the prior-year period.

Margins

The company’s adjusted home sales gross margin was 25.9%, expanding 190 basis points for the quarter. SG&A expenses — as a percentage of home sales revenues — were 8.8%, which decreased from 9.9% in the year-ago quarter.

Financials

Toll Brothers had cash and cash equivalents of $1.64 billion at fiscal 2021-end compared with $1.37 billion at fiscal 2020-end. At fiscal 2021-end, it had $1.81 billion available under the $1.905-billion bank revolving credit facility, scheduled to mature in November 2026.

Total debt at fiscal 2021-end was $3.56 billion, down from $3.59 billion at fiscal third quarter-end and $3.96 billion at fiscal 2020-end. Debt to capital was 40.2% at fiscal 2021-end versus 41.6% at fiscal third quarter-end and 44.8% a year ago. During the quarter, the company repurchased nearly 1.73 million shares of its common stock at an average price of $59.49 per share for approximately $103.2 million.

Fiscal 2021 Highlights

Earnings for fiscal 2021 came in at $6.63 per share, up 95% from $3.40 reported a year ago. Total revenues of $8.79 billion were up 24.2% from a year ago. Homebuilding deliveries during the year were up 18% year over year to 9,986 units. The average price of homes delivered was $844,400 for the quarter, up from the year-ago level of $816,500.

Fiscal First-Quarter Guidance

Toll Brothers expects home deliveries of 2,000 units (indicating a rise from 1,777 units delivered in the prior-year quarter) at an average price of $865,000-$885,000 (suggesting a rise from $793,900 a year ago).

Adjusted home sales gross margin is expected to be 25.5%, implying an increase from 22.9% in the year-ago period. SG&A expenses are estimated to be 14.1% of home sales revenues (pointing to fall from 14.9% a year ago). The company expects the effective tax rate to be 26%.

Fiscal 2022 Guidance

For fiscal 2022, home deliveries are anticipated to be 11,250-12,000 units, at an average price of $875,000-$895,000. Toll Brothers expects adjusted home sales gross margin of 27.5% compared with 25% reported in fiscal 2021. SG&A expenses, as a percentage of home sales revenues, for full-year fiscal 2022 are projected to be 10.5% (suggesting fall from 10.9% in fiscal 2021).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.55% due to these changes.

VGM Scores

At this time, Toll Brothers has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Toll Brothers has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.