Trading to almost two-year highs after its Q2 report, homebuilder Toll Brothers (TOL 38.29, +0.26 +0.68%) beat market expectations on the top and bottom line while unit growth was up 26%. Gross margin and guidance fell in-line as backlog expanded in both dollars and units.
Starting with the earnings and revenues, TOL reported Q2 revenues which rose about 22% compared to last year to $1.36 billion. Earnings were also higher than last year at $0.73 while gross margins as a percentage of revenues were 21.0% in the quarter, compared to 22.0% last year. Adjusted gross margin, which excludes interest and inventory write-downs, was 24.3%, compared to 25.7% a year ago.
TOL’s home building deliveries were1,638 units in the quarter, a 22% increase in dollars and 26% in units, compared to the prior year. Average price of homes delivered was down slightly to $832,400 due to mix changes. Additionally, net signed contracts were $2.02 billion and 2,511 units rose 23% in dollars and 26% in units, compared to last year as the average price of net signed contracts was $804,200, compared to $825,500 one year ago. Moreover, for the first three weeks of FY 2017’s third quarter, beginning May 1, 2017, non-binding reservations deposits were up 12% in units, compared to the same period in FY 2016.
Based on FY 2017’s second-quarter-end backlog and the pace of activity at its communities, the company now estimates it will deliver between 6,950-7,450 homes in FY 2017, compared to previous guidance of 6,700-7,500 units, at an average delivered price for FY 2017’s full year of between $775,000-825,000 per home. This translates to projected revenues of between $5.4-6.1 billion in FY 2017, compared to $5.17 billion in FY 2016. Prior guidance for FY17 revenues stood at $5.19-6.19 billion. The company also expects Q3 deliveries of between 1,675-1,975 units with an average price of between $790,000-815,000. Also for Q2, TOL now expects gross margins to improve 10 basis points compared to Q2.
In closing, on the conference call, TOL management gave some favorable commentary suggesting FY2017 should shape up to be another substantial growth year. The stock has given back a portion of morning gains as the April New Home Sales reading this morning came in behind market expectations at 569,000. Tomorrow expect April Existing Home Sales, the March FHFA Housing Price Index and the MBA Mortgage Applications reading all before noon.