Trading On margin

Toll Brothers (TOL) Third Quarter Profit and Revenue Leading, Margin Up – Aug 25, 2021

Toll Brothers, Inc.‘s (TOL Free Report) rose 1.8% in the August 24 trading session, after posting strong results for the third quarter of fiscal 2021 (ended July 31, 2021). The top and bottom scores both exceeded Zacks’ consensus estimate and increased significantly year over year. The company benefited from its strategy of expanding product lines, prices and geographic areas.

Douglas C. Yearley, Jr., President and CEO, said, “Demand continues to be very strong. Net contracts signed increased 35% in dollars to about $ 3 billion compared to the same period a year earlier. The housing market is fueled by many strong fundamentals, including low mortgage rates, favorable Millennial demographics, a decade of pent-up demand, a weak supply of new homes and a tight resale market. We anticipate strong and sustainable demand for our homes in the years to come. “

He continued, “Our record backlog, focus on capital and operational efficiency, and continued strength in the housing market give us confidence that our full margins for fiscal 2022 will significantly exceed the strong margins we expect. for our fourth quarter for fiscal 2021 and that our initial return on equity will exceed 20% in fiscal 2022 and beyond. “

On August 24, 2021, Toll Brothers announced a strategic partnership with Equity Residential to selectively acquire and develop sites for new rental apartment communities in the greater Boston, MA area; Atlanta, Georgia; Austin, Texas; Denver, CO; Orange County / San Diego, California; Seattle, WA, and Dallas-Fort Worth, Texas.

Income and income discussion

The nation’s leading luxury home builder reported earnings of $ 1.87 a share, beating Zacks’ consensus estimate of $ 1.52 by 23%. In addition, said figure was up 74.4% from the 90 cents per share figure a year ago due to higher revenues and margins.

Revenues of $ 2.26 billion exceeded the consensus mark of $ 2.22 billion by 1.7% and were up 26.8% year-over-year, supported by solid demand in the during the quarter.

Segment detail

Toll Brothers operates in two showcase segments, namely traditional house building and urban infill (“City Living”).

Revenue from traditional home construction totaled $ 2.15 billion, up 28.1% year-on-year, and City Living’s revenue rose more than 594% to $ 184 million.

Inside the headlines

Home sales revenue increased 37% from a year earlier to $ 2.23 billion. Homes delivered increased 28% year-on-year to 2,597 units. Deliveries increased in all areas served by the company. The average price of delivered homes was $ 806,600 for the quarter, up 1.7% from last year’s level of $ 793,100.

The number of net contracts signed for the reported quarter was 3,154 units, up 11% year-over-year. The net worth of signed contracts was $ 2.98 billion, reflecting a 35% increase from the previous year quarter. These are record numbers in the third quarter.

At the end of the third fiscal quarter, Toll Brothers had an order book of 10,661 homes, which is a 47% year-over-year increase. In addition, potential backlog revenue improved 55% year-on-year to $ 9.44 billion. The backlog for the quarter, in both dollars and units, hit a record high. The average late home price was $ 885,200, up from $ 840,600 at the end of the comparable period of fiscal 2020.

The cancellation rate for the reported quarter was 3.1% compared to 8% for the period of the previous year.

Margins

The company’s adjusted home sales gross margin was 25.6%, up 170 basis points (bps) for the quarter.

Selling and administrative expenses, as a percentage of home sales revenue, were 10.5%, compared to 11.9% in the same quarter a year earlier.

Finance

Toll Brothers had $ 946 million in cash and cash equivalents as of July 31, 2021, compared to $ 1.37 billion at the end of fiscal 2020. At the end of the third fiscal quarter, it had $ 1. $ 79 billion under the $ 1.905 billion revolving bank credit facility, due in November 2025.

Total debt at the end of the third quarter of the fiscal year was $ 3.59 billion, compared to $ 3.96 billion at the end of fiscal 2020. Debt to equity was 41.6% at the end of the third fiscal quarter against 44.8% a year ago. During the quarter, the company repurchased nearly 1.7 million common shares at an average price of $ 57.66 per share for approximately $ 95.4 million.

Budget guidelines for the fourth quarter

Toll Brothers expects home deliveries of 3,450 units (indicating a decrease from the 2,940 units delivered in the prior year quarter) at an average price of $ 840,000 (suggesting an increase from $ 805,000 a year ago).

The adjusted gross margin for home sales is now expected to be 25.6% (up from the previous projection of 24.8), implying an increase from 21.9% a year ago. General and administrative expenses are estimated at 9.8% of home sales revenue (indicating growth from 9.9% a year ago). The projection improved from previous expectations by 11.6%. The company expects the effective tax rate to be 26%.

Orientations for the 2021 financial year

For fiscal 2021, home deliveries are now expected to be 10,100 units (indicating an improvement over the 8,496 units reported for fiscal 2020) at an average price of $ 830,000. The average price for the quarter of last year was $ 816,500.

Toll Brothers expects an adjusted gross margin from home sales of 24.9% (reflecting a marginal increase from the 24.6% previously projected). The current projection implies a 23.5% growth recorded a year ago. General and administrative expenses, as a percentage of home sales revenue, for fiscal 2021 are expected to be 11.3% (suggesting a decrease from 12.5% ​​for fiscal 2020). The current estimate reflects a decrease from the previous projection of 11.8%.

Zack Rank

Toll Brothers – who shares space with Lennar Corporation (LEN Free report), DR Horton, Inc. (DHI Free report) and PulteGroup, Inc. (MPS Free Report) in the Zacks Building Products – Home Builders – sector currently has a Zacks Rank # 3 (Hold). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.


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