Toll Brothers Beats Q3 Estimates, but Softer Guidance Hits Stock
Luxury homebuilder posts record revenue on higher home prices, yet a weaker outlook for future deliveries mutes investor enthusiasm.
Toll Brothers, Inc. (NYSE: TOL) reported third-quarter earnings that surpassed analyst expectations on Tuesday, fueled by record home sales revenue and resilient pricing in the luxury housing market. Despite the strong quarterly performance, the company's shares slipped in after-hours trading after it issued a delivery forecast that fell short of some estimates, signaling potential headwinds.
The Horsham, Pennsylvania-based builder announced net income of $369.6 million, or $3.73 per diluted share, for the quarter ending July 31. This figure exceeded the consensus analyst estimate of $3.64 per share. Revenue climbed 6% year-over-year to a record $2.88 billion, narrowly beating Wall Street's forecast of $2.86 billion. The results were driven by a 5% increase in home deliveries, with the average price of each home rising to $974,000.
Management highlighted an adjusted gross margin of 27.5%, which was above the company's own guidance, reflecting strong operational execution and pricing power. However, the positive results were tempered by a mixed outlook. The value of net signed contracts remained flat compared to the prior year at $2.41 billion, while the number of homes in its backlog declined by 19%, suggesting a potential cooling in future demand.
For its upcoming fourth quarter, Toll Brothers projected it would deliver approximately 3,350 homes, guiding the full-year total to around 11,200 units. This guidance appeared to weigh on investor sentiment. Following the post-market announcement, the company's stock, which had risen 1.7% to $132.18 in regular trading, fell by approximately 0.9% in extended hours.
Despite the market's cautious reaction, some analysts remain bullish on the company's prospects. Following the report, B of A Securities reiterated a 'Buy' rating and raised its price target on the stock to $145. Analysts at Wells Fargo had also recently increased their price target, citing confidence in the luxury homebuilder's position.