Toll Brothers Beats Estimates as Builder Raises Home Prices

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  • Contracts gain in NYC, helping to ease fears of a slowdown
  • Order growth held back by lack of inventory in California

Toll Brothers Inc., the biggest U.S. luxury-home builder, reported fiscal second-quarter earnings that beat expectations, signaling that the market for costly homes is holding up.

Net income for the three months ended April 30 was $89.1 million, or 51 cents a share, compared with $67.9 million, or 37 cents, a year earlier, the Horsham, Pennsylvania-based builder said in a statement Tuesday. The average estimate of 15 analysts was for earnings of 46 cents a share, according to data compiled by Bloomberg.

The stock market has rebounded from a slide early in the year, helping to prop up demand for real estate nationwide. Toll Brothers, the only large publicly traded builder focused on luxury homes, has expanded in some of the country’s priciest areas, such as New York City, where sales have been pressured by a surge of new supply. Contracts in the company’s City Living communities in New York climbed 26 percent in value and 18 percent in units in the quarter from a year earlier.

“While this wasn’t a perfect quarter, it may be enough to ease some of the fears, especially around NYC, that have been weighing on the shares,” Megan McGrath, an analyst with MKM Holdings LLC in Stamford, Connecticut, said in a note to clients today. “We believe expectations for TOL were low.”

Toll rose 3.7 percent to $28.11 at 9:47 a.m. in New York. The shares had fallen 28 percent in the 12 months through Monday, the worst performance in an S&P index of homebuilders, which had slipped 6 percent.

California Issues

The company delivered 1,304 homes in the quarter, 9 percent more than a year earlier. The average selling price climbed to $855,500 from $713,500, the company said. Net signed contracts rose 3 percent from a year earlier to 1,993 units.

The order growth “wasn’t particularly inspiring, but it appears as if there may be some short-term issues in California which, if addressed, could re-accelerate orders in future quarters,” McGrath wrote.

Contracts in California slipped 25 percent from a year earlier to 275 units, in part because of a temporary lack of inventory for sale in the quarter, Toll Brothers said.

The company’s gross margin, excluding interest and writedowns, climbed to 25.7 percent from 25.3 percent a year earlier.

Toll said it expects to deliver 5,800 to 6,300 homes in fiscal 2016 at an average price of $820,000 to $850,000, compared with 5,525 deliveries at an average price of $755,000 last year.