Share price of Toll Brothers, Inc. (TOL) plummeted about 8% on Dec 10 as the homebuilding company missed earnings expectation and reported sluggish margins in the fourth quarter of fiscal 2015.
Adjusted earnings of 71 cents per share in the fourth quarter of fiscal 2014 missed the Zacks Consensus Estimate of 72 cents by 1.4%, possibly due to soft margins and higher expenses. However, adjusted earnings increased 31.5% from 54 cents in the prior-year quarter on the back of strong revenues.
The company reported revenues of $1.35 billion in the fourth quarter of fiscal 2014, beating the Zacks Consensus Estimate of $1.32 billion by 2.3%. Revenues were up a solid 29.8% year over year on the back of aggressive pricing and higher number of homes closed.
Quarter Detail
The number of consolidated homebuilding deliveries increased 22% year over year to 1,807 units in the fourth quarter of fiscal 2014 and were within the company’s expected range of 1710 and 1910 homes. The number of homes closed increased in all the regions excluding the west. The average price of homes delivered was $747,000 in the quarter, up 6.3% year over year. The company ended the quarter with 263 selling communities, up 13.4% from the prior year quarter.
The number of net orders signed was 1,282 units in the fourth quarter of fiscal 2014, up 10% year over year. Value of net orders signed during the quarter was $970.8 million, up 16% year over year.
The company’s backlog totaled 3,679 homes as of Oct 31, 2014, flat year over year. Potential housing revenues from backlog grew 3% year over year to $2.72 billion, primarily attributable to an increase in prices of backlogs.
The company’s homebuilding gross margin (excluding interest and write-downs) grew 10 basis points (bps) to 25.5%, driven by improved pricing and mix. However, margins declined 130 bps sequentially.
As a percentage of revenues, selling, general and administrative (SG&A) expenses increased 10 bps to 8.9% despite higher revenues. Operating margin improved 10 bps year over year to 12.4% on the back of improved homebuilding gross margin.
The company reported a net debt-to-capital ratio of 41.3% in the fourth quarter of fiscal 2014 compared with 43.3% in the third quarter of fiscal 2014.
Fiscal 2014
Adjusted earnings of $1.84 per share in fiscal 2014 beat the Zacks Consensus Estimate of $1.83 by 0.5%. Earnings increased 99% from 97 cents in the prior-year quarter on the back of strong revenues.
Revenues of $3.91 billion in fiscal 2014 were within the company’s expected range of $3.76 billion and $3.99 billion and came ahead of the Zacks Consensus Estimate of $3.87 billion by 1%. Revenues were up a solid 46% year over year on the back of higher number of homes closed.
Outlook 2015
Management expects to deliver 5,000 and 6,000 homes in fiscal 2015. The average price of homes delivered is expected to range between $710,000 and $760,000. The company expects community count to range between 270 and 310 in fiscal 2014. Owing to improving traffic, the company is optimistic about the upcoming spring selling season.
Toll Brothers currently carries a Zacks Rank #3 (Hold).
Other Stock to Consider
Some better-ranked stocks in the building sector worth considering include Hovnanian Enterprises Inc. (HOV), CaesarStone Sdot-Yam Ltd. (CSTE) and NVR, Inc. (NVR). While CaesarStone Sdot-Yam sport a Zacks Rank #1 (Strong Buy), Hovnanian Enterprises and NVR carries a Zacks Rank #2 (Buy).
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