Toll Earnings Beat Estimates as Luxury-Home Prices Climb

Toll Brothers Inc. (TOL), the largest U.S. luxury-home builder, reported fiscal fourth-quarter earnings that beat analyst estimates as prices for its houses climbed.

Net income for the three months through October was $94.9 million, or 54 cents a share, the Horsham, Pennsylvania-based company said today in a statement. The average estimate of 18 analysts was for earnings of 43 cents a share, according to data compiled by Bloomberg. A year earlier, profit was $411.4 million, or $2.35 a share, boosted by a tax-related gain.

Builders are benefiting from a tight supply of existing houses on the market, which is boosting values even as an increase in mortgage rates cools demand. Last month, Toll agreed to buy Shapell Industries Inc.’s homebuilding business for about $1.6 billion, gaining 5,200 lots in the Los Angeles and San Francisco Bay areas.

Toll “easily beat consensus and our higher estimate, with the quality of that beat being solid,” Stephen East, an analyst at International Strategy & Investment Group LLC, wrote in a note today. “We expect order trends will pick up as we move further away from the housing disruption seen in the autumn months.”

Toll’s fourth-quarter revenue was $1.04 billion, up from $632.8 million a year earlier. The average price of homes sold was $703,000, up from $651,000 in the previous three months. Signed contracts rose 6 percent to 1,163 homes, compared with 70 percent growth a year earlier.

Flat Contracts

Contracts have been flat in the first five weeks of the fiscal first quarter, with higher prices, political discord and rising interest rates contributing to slower demand, Toll said.

“We believe this leveling of demand will prove temporary based on still-significant pent-up demand, the gradual strengthening of the economy and the improving prospects of our affluent customers,” Chief Executive Officer Douglas Yearley Jr. said in the statement.

Toll fell 0.7 percent to $33.34 today. The shares are up 3.1 percent this year, compared with little change in the 11-company Standard & Poor’s Supercomposite Homebuilding Index.

While Toll “was clearly not immune from the recent slowdown in housing activity, we continue to like the company’s positioning in the niche luxury market and we expect to see continued upward momentum in sales and gross margins over the next year,” Megan McGrath, an analyst at MKM Partners LLC in Stamford, Connecticut, wrote in a Dec. 6 report.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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