Shares of Toll Brothers, Inc. TOL fell 7.04% on Dec 8 after the homebuilding company reported worse-than-expected earnings in the fourth quarter of fiscal 2015.
Adjusted earnings of 80 cents per share in the fourth quarter of fiscal 2015 missed the Zacks Consensus Estimate of 83 cents by 3.6%. Adjusted earnings, however, surged 12.7% year over year driven by solid revenues.
The homebuilding company reported revenues of $1.44 billion in the fiscal fourth quarter, surpassing the Zacks Consensus Estimate of $1.40 billion by 2.9%. Revenues also increased 6% year over year on the back of an increase in home deliveries and average price of homes delivered.
Quarter Detail
In line with the company’s projected range of 1,645 to 1,945 homes, consolidated homebuilding deliveries inched up 1% year over year to 1,820 units in the fourth quarter of fiscal 2015. While deliveries increased in West and California regions, it declined in North, Mid-Atlantic and South regions.
Average price of homes delivered was $790,000 in the quarter, up 5.8% year over year. This was well within the company’s expectation of $780,000 and $800,000. The company reported an increase in average prices of homes in all regions. It ended fiscal 2015 with 288 selling communities, up 9.5% from the prior-year quarter.
Toll Brothers offers homes under two segments – Traditional Home Building Product, and City Living. Traditional Home Building revenues during the quarter were $1.31 billion, up 11% year over year on the back of a higher average price per unit and volume growth. However, City Living reported revenues of $131.1 million, down 21.6% from $167.3 million in the prior-year quarter due to a lower number of homes delivered.
The number of net orders signed was 1,437 units in the fourth quarter, up 12% year over year. Value of net orders signed during the quarter was $1.25 billion, up 29% year over year on the back of a 15% increase in the average price of net signed orders.
Toll Brothers’ order trends have been strong through all the quarters of fiscal 2015. With order units recording a 21% increase in the first five weeks of fiscal 2016, order trends should remain strong in fiscal 2016 as well.
At the end of the fiscal fourth quarter, Toll Brothers had a backlog of 4,064 homes, up 10% year over year. Potential housing revenues from backlog grew 29% year over year to $3.50 billion primarily attributable to a 16.6% increase in average prices of backlog.
The company’s homebuilding gross margin (excluding interest impairments and changes in reserves) increased 50 basis points (bps) to 26.0%. Sequentially, gross margins improved 80 bps. However, the figure fell short of the company’s expectation of 26.7%.
As a percentage of revenues, SG&A expenses improved 20 bps to 8.7% owing to higher revenues. Operating margin increased 120 bps year over year to 13.6% due to a lower SG&A ratio.
Fiscal 2015
Toll Brothers reported adjusted earnings of $1.97 per share in fiscal 2015, missing the Zacks Consensus Estimate of $2.01 by 2%. However, adjusted earnings per share increased 7.1% year over year driven by solid revenues.
The homebuilding company reported revenues of $4.17 billion in fiscal 2015, in line with the Zacks Consensus Estimate. Revenues also increased 7% year over year on the back of a 2% increase in home deliveries.
Fiscal 2016 Outlook
Toll Brothers expects home building revenues between $4.5 billion and $5.6 billion in fiscal 2016. Management expects to deliver 5,600 to 6,600 homes. The company expects the average price of homes delivered to be between $800,000 and $850,000. The company expects joint venture and other income between $100 and $150 million. Gross margins are expected to improve 110–150 bps, higher than 21.6% reported in 2015. SG&A is expected to improve to the range of 10.1% to 10.3% of revenues in fiscal 2016.
Toll Brothers has a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the construction sector can consider Lennar Corporation LEN, Sekisui House Ltd. SKHSY and Masco Corporation MAS. All three companies have a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment