Toll Brothers (TOL) is down 7% after missing fourth quarter estimates this morning.
Toll is weighing on the homebuilders today after the group has had a huge run this year. TOL is up 51% year-to-date versus the Homebuilder ETF (ITB) +56% YTD. The new home market remains strong as millennials are finally starting to buy homes. Toll is a high-end homebuilder so it is not quite in the sweet spot.
Still, Toll's fourth quarter results were strong. Earnings per share were $1.17 vs. $0.67 last year despite a warranty charge and three high-end condo deliveries that got pushed out to the first quarter. Revenue was up 9% to $2 billion with deliveries up 9%. Fourth quarter contracts rose 20% in dollars, the fifth quarter in a row of 20%-or-greater growth.
The company's backlog of $5.06 billion and 5,851 units increased 27% in dollars and 25% in units. As a result, the company expects strong revenue and earnings per share growth in FY 2018. Toll Brothers forecasts fiscal 2018 deliveries growing 15% at the midpoint of guidance. Adjusted gross margin is expected to fall modestly from 24.8% last year, with headwinds coming from the City Living segment and California, where margins were high at 28%.
Management is not concerned about the ramifications of changing tax laws, noting that its home buyers are not tax driven.
Toll saw the highest sales in the first week of December since 2005. The Spring selling season is just around the corner and management remains bullish on the new home market.
TOL has held support near the $46 level so far this session.
Toll Brothers trades at 1.7x book value which is just below the average for the group that is publicly traded.