Overview
Toll Brothers (TOL -1.21%), a leading builder of luxury homes, announced its fiscal 2024 second-quarter results on May 21, with numbers that were largely positive and exceeded management's expectations.
For the quarter, which ended April 30, net income was $481.6 million, or $4.55 per diluted share, including a $1.17 per share gain from selling a land parcel. Revenue from home sales reached $2.65 billion, supported by the delivery of 2,641 units at an average price of about $1 million. These results surpassed management's guidance range of $2.4 billion to $2.525 billion (on the expectation of selling 2,400 to 2,500 units). The period was marked by strong demand, effective cost management, and some concerns about the company's declining backlog value.
| Metric | Fiscal Q2 2024 | Fiscal Q2 2024 Guidance | Fiscal Q2 2023 | Change |
|---|---|---|---|---|
| Net income | $481.6 million | N/A | $320.2 million | 50.4% |
| Earnings per share (diluted) | $4.55 | N/A | $2.85 | 59.6% |
| Home sales revenues | $2.65 billion | $2.4 billion to $2.525 billion | $2.49 billion | 6.4% |
| Adjusted home sales gross margin | 28.2% | 27.6% | 28.3% | (0.1 percentage points) |
| SG&A as a percentage of home sales revenues | 9% | 9.7% | 9.1% | (0.1 percentage points) |
Data sources: Company results from company. Guidance from the fiscal Q1 report.
Company overview and focus
Toll Brothers operates in 24 states and the District of Columbia, and caters to an array of demographic segments, including first-time buyers, move-up buyers, empty-nesters, and active adults. Recently, it has focused on expanding its geographic footprint and diversifying its offerings.
Offering a range of luxury homes at different price points helps the firm capture a broad customer base. This appears to have been effective, as reflected in its improvements in unit deliveries. Additionally, offering in-house financing through its Toll Brothers Mortgage Company streamlines the buying process and adds to its revenue streams.
Quarterly highlights
Selling, general, and administrative (SG&A) expenses were lower than expected at 9% of home sales revenues, indicating effective cost management. Adjusted home sales gross margin was 28.2%, exceeding the guided 27.6%.
Notably, the company booked a $1.17 per share gain from selling a land parcel for $175.2 million. Excluding that, its earnings per share would have been $3.38.
However, some challenges were apparent. The company's backlog value at the end of fiscal Q2 was $7.38 billion for 7,093 units, down 12% from $8.38 billion for 7,574 units a year prior. This decline may point to future revenue risks. Gross margins also showed pressure, as Toll's home sales gross margin of 25.8% was down from 26.4% a year earlier.
Toll Brothers continues to expand its geographic footprint. It now has 386 communities, up from 377 communities in fiscal Q1 2024 and 350 in fiscal Q2 2023. This helps mitigate regional economic risks and gives it opportunities to capture a broader market share. Its land acquisition activities remained robust (despite the parcel sale) as it spent $472 million to acquire approximately 3,470 lots during the quarter.
Looking ahead
Management made some optimistic updates to its guidance for the full fiscal year. It now forecasts 10,400 to 10,800 unit deliveries, up from the prior 10,000 to 10,500 range. The average delivered price per home is now expected to be $960,000 to $970,000, revised upward from $940,000 to $960,000. SG&A expenses as a percentage of home sales revenues are expected to land at 9.6%, down from the previously anticipated 9.8%.
Management remains upbeat about the demand outlook for homes, citing a healthy U.S. job market, improving consumer sentiment, and low inventory levels. Investors should keep an eye on Toll Brothers' backlog trends and gross margin pressures. The company's ability to sustain revenue growth through effective marketing and land acquisition strategies will also be crucial in the coming quarters.
