Aug. 22 (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury-home builder, rose to a five-year high after reporting a better-than-estimated profit and an increase in revenue for the fiscal third-quarter.
Net income was $61.6 million, or 36 cents a share, for the three months ended July 31, compared with $42.1 million, or 25 cents, a year earlier, the Horsham, Pennsylvania-based company said today in a statement. The average estimate of 18 analysts in a Bloomberg survey was for earnings of 18 cents a share. The year-earlier results included a $38.2 million tax benefit.
“Top to bottom, this result was easily the best we’ve seen in the industry this quarter,” Stephen East, an analyst with International Strategy & Investment Group LLC in Saint Charles, Missouri, wrote in a note today. “The luxury market has been one of the best, if not the best segment in housing.”
Toll rose 3.8 percent to $33.01 at the close in New York, the highest since Feb. 16, 2007. The 11-member Standard & Poor’s 1500 Homebuilding index gained 3.1 percent.
The U.S. new-home market is beginning to recover as historically low mortgage rates and a tight inventory of existing houses push more people to consider buying from builders. The improvement is enabling homeowners to sell starter houses and move up to larger properties, such as those offered by Toll, which caters to customers with better access to cash and credit than first-time buyers usually have.
“The housing recovery is being driven by pent-up demand, very low interest rates and attractively priced homes,” Chief Executive Officer Douglas Yearley Jr. said during a conference call with investors. “With an industry-wide shortage of inventory in many markets, we are enjoying some pricing power.”
Revenue rose to $554.3 million in the quarter from $394.3 million a year earlier, Toll said. Pretax income increased more than 10-fold to $43 million. The company completed 963 home sales, a 39 percent increase.
The average price of the homes Toll delivered in the third quarter increased to $576,000 from $557,000 in the previous three months. The gross margin, which excludes interest and writedowns, widened to 24.4 percent from 23.4 percent a year earlier.
Toll Brothers spent $189 million on land during the quarter, including $110 million for a joint venture with Shea Homes LP in Orange County, California. In June, it won a competition to team with Starwood Capital Group LLC on a hotel-condominium development near the Brooklyn Bridge in New York.
The company was able to raise prices at about half of its selling communities, with the biggest increases at its New York City-area high-rises, Yearley said. Sales and pricing are strengthening in Texas, California, Seattle and parts of Florida in addition to Toll’s Atlantic Coast concentration from Boston to Washington, he said.
“Chicago was a nightmare,” Executive Chairman Bob Toll said during the conference call. “It’s dead as a doornail.”
U.S. housing construction permits in July rose to an annual pace of 812,000, the most since 2008, the Commerce Department reported Aug. 16. Orders for 13 publicly traded homebuilders increased to 29,362 in the second quarter, up 17 percent from a year earlier, according to data compiled by Bloomberg Industries.
Sales of previously owned homes rose to an annual pace of 4.47 million last month, up from 4.37 million in June, the National Association of Realtors reported today.
The Commerce Department releases July new-home sales data tomorrow. Sales probably rose to an annual pace of 365,000, the median of 72 estimates in a Bloomberg survey, from 350,000 in June.
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