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Toll Brothers (TOL) Down 1.4% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Toll Brothers (TOL - Free Report) . Shares have lost about 1.4% 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 Q2 Earnings Miss, Revenues Beat, Guidance Up
Toll Brothers reported mixed results for second-quarter fiscal 2024 (ended Apr 30, 2024), wherein its earnings missed the Zacks Consensus Estimate but revenues beat the same. Nonetheless, both the top and bottom lines increased on a year-over-year basis.
Toll Brothers' fiscal second-quarter success was driven by strong demand for new homes, bolstered by a resilient economy, favorable demographics, and a significant housing supply shortage. Addressing these market conditions, the company expanded its price points to include more affordable luxury homes and increased its supply of spec homes. These strategies allowed Toll Brothers to increase its market share, reduce cycle times, improve inventory turnover, and better leverage fixed costs, which resulted in revenue growth and higher operating margins. Additionally, a capital-efficient land strategy further enhanced returns, positioning the company for continued attractive returns in the future.
Following encouraging fiscal second-quarter performance and encouraging demand trend, the company has revised upward its full-year guidance for revenues and earnings. It now expects earnings per share (EPS) of approximately $14.00 in fiscal 2024 (versus $13.25-$13.75 of prior expectation) with a return on beginning equity of approximately 22%.
Earnings & Revenue Discussion
This Fort Washington, PA-based homebuilder reported EPS of $3.38, which missed the Zacks Consensus Estimate of $4.13 by 18.2% but increased 18.6% from the year-ago period profit level of $2.85. The increase was due to higher revenues.
Total revenues (including Home sales and Land sales and others) came in at $2.84 billion, which beat the consensus mark of $2.52 billion by 12.6% and grew 13.2% year over year. The growth was attributable to higher deliveries.
Inside the Headlines
The company’s total home sales revenues improved 6.3% from the prior-year quarter (well above our projection of a decline of 1.3% year over year) to $2.65 billion. Homes delivered were up 6% year over year (ahead of our expectation of down 2% year over year) to 2,641 units. Deliveries increased across the company’s geographic regions served by the company barring North and Mountain. The average price of homes delivered was $1,002,600 for the quarter, up 0.3% from the year-ago level of $999,300.
Moreover, net-signed contracts for the reported quarter were 3,041 units, up 30% year over year. The value of net signed contracts was $2.94 billion, indicating a rise of 29%.
At the fiscal second-quarter end, Toll Brothers had a backlog of 7,093 homes, representing a year-over-year decrease of 6%. Potential revenues from backlog declined 12% year over year to $7.38 billion. The average price of homes in the backlog totaled $1,040,200, down 5.9% from $1,105,900 a year ago.
The cancelation rate (as a percentage of signed contracts) for the reported quarter was 5.7% compared with 11.5% in the prior-year period.
Margins
The company’s adjusted home sales gross margin was 28.2%, contracting 10 basis points (bps) for the quarter. SG&A expenses, as a percentage of home sales revenues, were 9%, which decreased 10 bps from the year-ago quarter.
Financials
TOL had cash and cash equivalents of $1.03 billion at the end of the fiscal second quarter compared with $1.3 billion at the fiscal 2023-end. At April 2024-end, it had $1.7 billion available under the $1.9 billion bank revolving credit facility, scheduled to mature in February 2028.
Total debt at the fiscal second-quarter end was $2.84 billion, down from $2.86 billion at the fiscal 2023-end. Debt to capital was 28% at the fiscal second-quarter end, down from 29.6% at the fiscal 2023-end.
On Mar 12, 2024, the company announced a 10% increase in its quarterly cash dividend, raising it to 23 cents per share from 21 cents. Subsequently, on Apr 19, 2024, the company paid the increased dividend of 23 cents per share to shareholders who were on record as of the close of business on Apr 5, 2024.
Fiscal Third-Quarter Guidance
Toll Brothers expects home deliveries of 2,750-2,850 units (versus 2,524 units delivered in the prior-year quarter) at an average price of $950,000-$960,000 (suggesting a decline from $1,059,100 a year ago). It expects the period-end community count to be 400.
Adjusted home sales gross margin is expected to be 27.7%, implying a decrease from 29.3% in the year-ago period. SG&A expenses are estimated to be 9.2% of home sales revenues, indicating a rise from 8.6% in the year-ago period. The company expects the effective tax rate to be 26%.
Fiscal 2024 Guidance Raised
For fiscal 2024, home deliveries are now anticipated to be in the range of 10,400-10,800 units (versus earlier expectations of 10,000-10,500 units). The estimated range reflects growth from 9,597 units in fiscal 2023. It still expects the period-end community count to be 410.
The average price of delivered homes is still expected to be $960,000- 970,000 (versus the prior projection of $940,000-$960,000). The estimated range reflects a decrease from $1,027,900 reported in fiscal 2023.
Toll Brothers still expects an adjusted home sales gross margin of 28% compared with 28.7% reported in fiscal 2023. SG&A expenses, as a percentage of home sales revenues, are now projected to be 9.6% versus earlier expectations of 9.8% for fiscal 2024. In the year-ago period, the metric was 9.2%. The company still expects the effective tax rate to be 25.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Toll Brothers has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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Toll Brothers (TOL) Down 1.4% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Toll Brothers (TOL - Free Report) . Shares have lost about 1.4% 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 Q2 Earnings Miss, Revenues Beat, Guidance Up
Toll Brothers reported mixed results for second-quarter fiscal 2024 (ended Apr 30, 2024), wherein its earnings missed the Zacks Consensus Estimate but revenues beat the same. Nonetheless, both the top and bottom lines increased on a year-over-year basis.
Toll Brothers' fiscal second-quarter success was driven by strong demand for new homes, bolstered by a resilient economy, favorable demographics, and a significant housing supply shortage. Addressing these market conditions, the company expanded its price points to include more affordable luxury homes and increased its supply of spec homes. These strategies allowed Toll Brothers to increase its market share, reduce cycle times, improve inventory turnover, and better leverage fixed costs, which resulted in revenue growth and higher operating margins. Additionally, a capital-efficient land strategy further enhanced returns, positioning the company for continued attractive returns in the future.
Following encouraging fiscal second-quarter performance and encouraging demand trend, the company has revised upward its full-year guidance for revenues and earnings. It now expects earnings per share (EPS) of approximately $14.00 in fiscal 2024 (versus $13.25-$13.75 of prior expectation) with a return on beginning equity of approximately 22%.
Earnings & Revenue Discussion
This Fort Washington, PA-based homebuilder reported EPS of $3.38, which missed the Zacks Consensus Estimate of $4.13 by 18.2% but increased 18.6% from the year-ago period profit level of $2.85. The increase was due to higher revenues.
Total revenues (including Home sales and Land sales and others) came in at $2.84 billion, which beat the consensus mark of $2.52 billion by 12.6% and grew 13.2% year over year. The growth was attributable to higher deliveries.
Inside the Headlines
The company’s total home sales revenues improved 6.3% from the prior-year quarter (well above our projection of a decline of 1.3% year over year) to $2.65 billion. Homes delivered were up 6% year over year (ahead of our expectation of down 2% year over year) to 2,641 units. Deliveries increased across the company’s geographic regions served by the company barring North and Mountain. The average price of homes delivered was $1,002,600 for the quarter, up 0.3% from the year-ago level of $999,300.
Moreover, net-signed contracts for the reported quarter were 3,041 units, up 30% year over year. The value of net signed contracts was $2.94 billion, indicating a rise of 29%.
At the fiscal second-quarter end, Toll Brothers had a backlog of 7,093 homes, representing a year-over-year decrease of 6%. Potential revenues from backlog declined 12% year over year to $7.38 billion. The average price of homes in the backlog totaled $1,040,200, down 5.9% from $1,105,900 a year ago.
The cancelation rate (as a percentage of signed contracts) for the reported quarter was 5.7% compared with 11.5% in the prior-year period.
Margins
The company’s adjusted home sales gross margin was 28.2%, contracting 10 basis points (bps) for the quarter. SG&A expenses, as a percentage of home sales revenues, were 9%, which decreased 10 bps from the year-ago quarter.
Financials
TOL had cash and cash equivalents of $1.03 billion at the end of the fiscal second quarter compared with $1.3 billion at the fiscal 2023-end. At April 2024-end, it had $1.7 billion available under the $1.9 billion bank revolving credit facility, scheduled to mature in February 2028.
Total debt at the fiscal second-quarter end was $2.84 billion, down from $2.86 billion at the fiscal 2023-end. Debt to capital was 28% at the fiscal second-quarter end, down from 29.6% at the fiscal 2023-end.
On Mar 12, 2024, the company announced a 10% increase in its quarterly cash dividend, raising it to 23 cents per share from 21 cents. Subsequently, on Apr 19, 2024, the company paid the increased dividend of 23 cents per share to shareholders who were on record as of the close of business on Apr 5, 2024.
Fiscal Third-Quarter Guidance
Toll Brothers expects home deliveries of 2,750-2,850 units (versus 2,524 units delivered in the prior-year quarter) at an average price of $950,000-$960,000 (suggesting a decline from $1,059,100 a year ago). It expects the period-end community count to be 400.
Adjusted home sales gross margin is expected to be 27.7%, implying a decrease from 29.3% in the year-ago period. SG&A expenses are estimated to be 9.2% of home sales revenues, indicating a rise from 8.6% in the year-ago period. The company expects the effective tax rate to be 26%.
Fiscal 2024 Guidance Raised
For fiscal 2024, home deliveries are now anticipated to be in the range of 10,400-10,800 units (versus earlier expectations of 10,000-10,500 units). The estimated range reflects growth from 9,597 units in fiscal 2023. It still expects the period-end community count to be 410.
The average price of delivered homes is still expected to be $960,000- 970,000 (versus the prior projection of $940,000-$960,000). The estimated range reflects a decrease from $1,027,900 reported in fiscal 2023.
Toll Brothers still expects an adjusted home sales gross margin of 28% compared with 28.7% reported in fiscal 2023. SG&A expenses, as a percentage of home sales revenues, are now projected to be 9.6% versus earlier expectations of 9.8% for fiscal 2024. In the year-ago period, the metric was 9.2%. The company still expects the effective tax rate to be 25.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Toll Brothers has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.