Luxury homebuilder Toll Brothers (TOL) traded lower after reporting fourth quarter results this morning.
Fourth quarter EPS grew 78% to $2.08 and revenue rose 21% as
deliveries grew 12% (in-line with guidance) while the average selling price of
homes rose 8% to $906,000, above guidance.
However, net signed contracts, the forward-looking indicator for demand, fell 15% year/year to $1.5 bln.
Management noted that the market softened further in November. California led the decline.
These are just the latest data points to confirm the recent downturn in the housing market.
While price appreciation, higher rates, and fewer foreign buyers have become a near term headwind, Toll Brothers remains positive on the housing market given the positive long-term fundamentals. Household formation is increasing, unemployment is low, equity in existing homes is high, and a production deficit remains in place. Management compared the current consumer environment to late 2013, when interest rates spiked.
Toll Brothers likes its position in the market, focused on move-up home buyers, as the average age of existing homes in the U.S. is nearly 40 years, its oldest ever.
The stock just turned positive for the session, which is quite impressive given the weakness in the broader equity markets today. At this point, poor housing data does not come as a surprise. The stock trades at ~1x book value, a discount to larger peers.
The real test will come early next year when the spring selling season picks up. Management will host a call at 2:00 this afternoon.