On Dec 30, we issued an updated research report on Toll Brothers Inc. TOL.
On Dec 8, 2015, Toll Brothers reported earnings results for the fourth quarter of fiscal 2015. Despite missing the Zacks Consensus Estimate by 3.6%, the company’s fourth-quarter 2015 adjusted earnings of 80 cents per share increased 12.7% year over year due to solid revenues, an improved selling, general and administrative (SG&A) ratio, and strong operating margin. Revenues of $1.44 billion also beat the consensus mark by 2.9% and increased 6% year over year driven by increased home deliveries and a higher average price of homes delivered.
Furthermore, Toll Brothers’ orders remained strong throughout fiscal 2015 – a trend that is expected to continue into 2016.
However, deliveries at the City Living division, Toll's high-end urban apartment unit, fell 37% in the quarter. The company does not expect the deliveries of City Living division to improve in the near term as lower volumes is expected in 2016 compared to the prior year.
Gross margins were also hurt due to rising building materials and labor costs. This trend is not likely to change soon. In fact, rising land and labor costs have been threatening gross margins of other homebuilders like D.R. Horton, Inc. DHI, PulteGroup, Inc. PHM and KB Home KBH.
Toll Brothers has been reporting lower home deliveries and lower-than-expected growth in the average price of homes delivered for the past two quarters. However, this a Zacks Rank #3 (Hold) company continues to witness strong demand and pricing power in California, which will likely drive margins in the near term.
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