homebuilder Toll Brothers (TOL 38.63, +3.90, +11.23%)
started trading higher premarket after the company reported better than
expected third quarter results.
Revenues grew 27% to a record $1.91 bln for the third quarter, driven by strong revenue growth in California, West, South, Mid-Atlantic, and North regions, as deliveries grew 18% to 2,246 homes.
Excluding write downs and litigation settlements, gross margin of 23.7% beat guidance by 30 basis points.
The leading indicator, net signed contracts rose 7% to 2,316 units, up 12% to $2.03 bln.
Toll Brothers narrowed delivery guidance, raised the low end of its average selling price outlook and reaffirmed gross margins guidance for fiscal 2018. Management also said it was on track to return to community count growth by year end.
The company said record third-quarter contracts and a third-quarter-end backlog, up 22% in dollars from one year ago, indicate revenue and earnings growth in fiscal year 2019.
Executive Chairman Robert Toll: "We believe there is room for continued growth in the new home market in the coming years. Household formations have been increasing and in many regions the aging housing stock may not satisfy the lifestyles of today's buyers. Yet new home production has not kept pace with the growth in population and households. On the single-family side, housing starts, other than during the anemic years of this recovery, are at their lowest level since 1970. In addition, existing home values have increased, providing potential move-up and empty nester customers with more equity that they can put toward a new home purchase. We believe these two groups, along with the growing number of millennials starting to buy homes, are all sources of potential new demand in the coming years."
With an outlook for continued growth in to next year, the company repurchased ~3.7 mln shares of its common stock at an average price of $37.24 per share.
Toll Brothers has a market cap just under $6 bln and the stock trades at just 8x EPS estimates and ~1.3x book value, which is in-line with the group and a discount to large-cap players in the space like PulteGroup (PHM), Lennar (LEN) and D.R. Horton (DHI) that enjoy more scale.
Management will host a call at 11:00 this morning.
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