Toll Brothers Beats Q3 Estimates As New Home Sales Rise

Contractors raise a framed wall on a house under construction.

(Image credit: David Paul Morris/Bloomberg via Getty Images)

Toll Brothers (TOL) reported better than expected third-quarter results amid strong demand for new homes and continued low supply of existing homes for sale.

The performance reflected “a market for new homes that continues to benefit from historically low levels of resale inventory, favorable long-term demographic trends and the persistent underproduction of homes for well over a decade,” the company’s chief executive Douglas C. Yearley Jr said in a statement.

For the quarter ended July 31, Toll Brothers reported revenue of $2.7 billion, up 19% from a year ago, on net earnings per diluted share of $3.73, up 59%. The company delivered 2,524 homes, up 5% from the previous year.

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At the end of the quarter, Toll Brothers had 7,295 homes in backlog, down 32% from its fiscal third-quarter 2022, and valued at $7.9 billion, down 30%.

“We are very pleased with our third-quarter results,” Yearley said. “We beat our guidance for home sales revenues, adjusted gross margin and SG&A margin, leading to record third-quarter earnings of $3.73 per diluted share, up 59% year-over-year. In addition, we signed 2,245 net contracts for $2.2 billion in the quarter, up 77% in units year-over-year.”

Demand to remain strong

The executive said that demand remains solid as the company starts its fiscal fourth quarter.

“Based on these results and our expectations for the fourth quarter, we are raising our full-year guidance for deliveries, adjusted gross margin and SG&A leverage, and now expect our return on beginning equity for fiscal 2023 to be approximately 22%,” he said.

The company's updated fiscal 2023 forecast calls for home deliveries of 9,500 to 9,600 units, an adjusted gross margin of 28.5%, and SG&A as a percentage of home sales of 9.4%. The company’s previous guidance was for home deliveries of 8,900 units to 9,500 units, an adjusted gross margin of 27.8%, and SG&A as a percentage of home sales of 10%.

“While rising rates remain a challenge, they further cement the lock-in effect that has kept resale inventory at historically low levels,” Yearley said. “With our deep and well-located land holdings, industry-leading brand, healthy backlog, more efficient operations and balanced spec strategy, we are well-positioned to capitalize on continued solid demand for new homes.”

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.