Homebuilder Toll Brothers Profits Rise on Higher Selling Prices

Paul Ausick

Toll Brothers Inc. (NYSE: TOL) reported second-quarter fiscal 2014 results before markets opened Wednesday. The luxury homebuilder reported quarterly diluted earnings per share (EPS) of $0.35 on revenues of $860.4 million. In the same period a year ago, Toll Brothers reported EPS of $0.14 on revenue of $516 million. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.26 and $827.83 million in revenue.

The company has been able to bolster its average price for a delivered home from $577,000 in the second quarter a year ago to $706,000. The average price of net signed contracts was $729,000, compared with $678,000 in the 2013 second quarter.

Gross margin improved slightly, from 23.3% in the year-ago quarter to 23.6% in the second quarter of 2014.

The company’s CEO said:

As the nation’s leading builder of luxury homes, we are pursuing a program of prudent expansion supported by our strong liquidity. In the affluent Boston-to-Washington D.C. corridor we are expanding our suburban footprint and continuing the successful growth of our City Living brand, which develops for-sale condominium projects in New York City, the Northern New Jersey Gold Coast, Washington, D.C. and Philadelphia. … Our significant expansion over the past year in key California and Texas markets will be a major source of future growth. These are among the strongest housing markets in the U.S. … Demand over the past year has been solid, although relatively flat, compared to the strong growth we initially experienced beginning in 2011, coming off the bottom of this housing cycle. We note that last cycle’s recovery, in the early 1990’s, began with a period of rapid acceleration, followed by leveling, before further upward momentum. We believe that we are in a similar leveling period in the early stages of the housing recovery with significant pent-up demand building.

Toll Brothers expects to deliver between 5,100 and 5,850 new homes during its 2014 fiscal year at an average delivered price between $690,000 and $720,000 each.

Shares were up nearly 4% in premarket trading Wednesday to $37.00, in a 52-week range of $29.64 to $39.95 Thomson Reuters had a consensus analyst price target of around $40.00 before the results were announced.

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