Luxury-home builder Toll Brothers reported better-than expected second-quarter profits and revenue late Tuesday, buoyed by increased home deliveries and surging unit prices compared to 2022. Toll Brothers stock advanced Wednesday.
Even as U.S. home sales were subdued in April as elevated borrowing costs, high prices and limited stock took its toll on the housing market, Toll Brothers saw earnings grow more than 50% in the second quarter as home unit deliveries beat internal guidance and its backlog shrank vs. a year ago.
The Commerce Department reported early Tuesday that new homes sales improved in April for a fifth straight month. The rise was modest, from a seasonally adjusted annual rate of 656,000 to 686,000. But it was in stark contrast to falling sales rates for existing homes, which owners are holding onto in order to stick with their low-interest rate mortgages.
Toll Brothers stock jumped 2.1% to 65.10 Wednesday during market trade. Homebuilding stocks moved generally lower on Tuesday, with Toll Brothers falling 1.5% to 63.75.
Earlier this year, analysts and companies predicted the housing market would pick up steam. That view has come under pressure as existing homeowners sit tight, and as mortgage rates climb back toward their 2022 highs on uncertainty over Federal Reserve policy and the economy.
Homebuilder stocks performed well through the first few months of the year. But with the data sending mixed signals, and rising concerns about the impact of a possible federal default, the stocks came under clear selling pressure in the past week.
"Home sales are bouncing back and forth but remain above recent cyclical lows," NAR economist Lawrence Yun said in a news release. "The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand."
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Toll Brothers Stock: Earnings
Estimates: Wall Street saw Toll Brothers earnings growing 3% to $1.91 per share in Q2. Analysts viewed sales slipping 9% to $2.06 billion, accelerating the decline started in fiscal Q1. Expectations were for Toll Brothers to deliver around 2,079 units in Q2, down 13% from a year ago. The average home price per unit was expected to be $989,000, up 9% vs. a year ago.
Results: Toll Brothers reported EPS growing 54% to 2.85 in Q2 with revenue increasing around 10% to $2.5 billion. The luxury homebuilder delivered 2,492 home units in the second quarter, up 3% vs. a year ago and well above its expectations of 2,050-2,150. The average price per unit jumped 10% compared to 2022, coming in at $999,200 in Q2.
Meanwhile, Toll Brothers backlog at the end of the quarter totaled 7,574 home units, down 36% compared to last year.
Outlook: Toll Brothers expects deliveries in Q3 between 2,350-2,450 units with full-year deliveries of 8,900-9,500. The homebuilder sees the average delivered price per home in Q3 to be $1.005 million-$1.025 million. For the full year, Toll Brothers expects average prices of $975,000-$995,000.
Toll Brothers' previous full-year predictions were for 8,000-9,000 units delivered with selling prices of $965,000-$985,000.
CEO Douglas Yearley sounded an optimistic tune about the housing market in his Tuesday comments
"As mortgage rates have stabilized and buyer confidence has improved, the increase in demand that began in January has continued through our second fiscal quarter and into the start of our third quarter," Yearley said.
The Toll Brothers CEO added a shortage of homes for sale in the U.S. will continue as homeowners are "reluctant to give up their low-rate mortgages. "
"We believe the resulting supply - demand imbalance will continue well into the future, adding to the long-term tail winds that have supported the housing industry in recent years," Yearley said.
Toll Brothers stock ranks eighth in IBD's Building-Residential/Commercial industry group. TOL shares have a 95 Composite Rating out of 99. The stock also has a 94 Relative Strength Rating. The EPS Rating is 97 out of 99.
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