Toll Brothers Inc.'s fiscal third-quarter earnings rose 46% as the luxury home builder saw a double-digit revenue gain buoyed by what it called the most sustained demand it has seen in more than five years.Results comfortably beat Wall Street expectations, while orders also surged.
The builder raised its home delivery guidance for the year, now estimating total deliveries between 3,000 and 3,200 homes, compared with its previous estimate of 2,700 to 3,200 homes.
Shares climbed 2.5% to $32.60 in premarket trading. Through Tuesday's close, the stock has more than doubled in value in the past 12 months.
Toll Brothers, which caters largely to affluent move-up buyers in the Northeast and mid-Atlantic, is considered one of the top performers in the home-building sector. The U.S. housing market has in recent months shown signs of emerging from a historic downturn. Last month, PulteGroup Inc., often looked to as a snapshot of the national home-building picture, said it swung to a profit on a double-digit rise in revenue, helped by orders for new homes and higher average selling prices.
"The pace of our contract growth has far exceeded the national housing data as we are gaining market share," Chief Executive Douglas Yearley said. "Additionally, as the only national home building company focused on the luxury market, we are facing limited competition from the capital-constrained small and mid-sized private builders who are our primary competitors."
Orders surged 57% to 1,119, one of the best increases in the sector and a further sign that the rebounding activity seen this year may be more than just a blip.
For the quarter ended July 31, Toll Brothers reported a profit of $61.6 million, or 36 cents a share, up from $42.1 million, or 25 cents a share, a year earlier. The current-year period included pretax inventory write-downs of $3.1 million and a net tax benefit of $18.7 million, compared with pretax inventory write-downs of $16.8 million, a $3.4 million pretax loss from early repurchase of debt and a net tax benefit of $38.2 million in the year-earlier period.
Revenue rose 41% to $554.3 million.
Analysts polled by Thomson Reuters expected earnings of 18 cents a share on $510 million in revenue.
Home building revenue across all geographic segments was up. Revenue from the North surged 66%, and from the Mid-Atlantic region it was up 5.3%. The South was up 41% and the West climbed 75%.
Gross margin, excluding interest and write-downs, was 24.4%, compared with 23.4% a year ago.
Toll Brothers delivered 963 homes, a 39% increase from a year earlier. The average price of net signed contracts was $603,000, versus $570,000 in the prior-year period.
The cancellation rate, defined as cancellations divided by signed contracts, was down at 4.6% versus 7.4% a year earlier, but up from its 2.4% second-quarter rate, one of the lowest rates the sector had seen in some time. After the housing market crashed, builders saw double-digit cancellation rates, saddling them with unsold inventory that required steep discounts to sell.
The backlog rose 44% to 2,599 units.
In June, the Horsham, Penn., company agreed to pay a civil penalty of $741,000 to resolve alleged Clean Water Act violations at its construction sites. It also agreed to make investments to improve employee training and management oversight regarding stormwater compliance and to inspect its current and future construction sites routinely to minimize stormwater runoffs