Toll Brothers' to Post Q3 Earnings: What's in the Cards?

Toll Brothers, Inc. TOL is scheduled to report third-quarter fiscal 2024  (ended Jul 31, 2024) results on Aug 20, after the closing bell.

In the last reported quarter, the company's earnings missed the Zacks Consensus Estimate by 18.2%, but revenues beat the mark by 12.6%. Earnings and revenues increased 18.6% and 13.2% from the prior-year period, respectively.

On an encouraging note, earnings topped analysts' expectations in three of the trailing four quarters and missed on another occasion, the average surprise being 12.9%.

Trend in Estimate Revision

The Zacks Consensus Estimate for the fiscal third-quarter earnings per share increased to $3.28 from $3.25 over the past 60 days. The said figure indicates a 12.1% decline from the year-ago EPS of $3.73.

The consensus mark for revenues is pegged at $2.7 billion, indicating 0.3% year-over-year growth.

Factors to Note

Toll Brothers' fiscal third-quarter home sales are expected to have increased slightly from the year-ago reported level, given higher deliveries. Although higher mortgage rates will impact the volumes to some extent, low-existing homes for sale have been driving demand for new homes in the market. This tailwind is likely to have helped the company drive growth.

This apart, its focus on luxury move-up buyers, who already possess a residence and are looking to shift to larger and better homes, will somewhat contribute to the revenues. Toll Brothers has been enjoying greater pricing power than other homebuilding companies, as luxury homebuyers are less sensitive to price changes. The company has also been benefiting from the strategy of broadening its product lines, price points and geographies, along with spec sales.

On the fiscal second-quarter earnings call, TOL stated that it expects higher home deliveries within 2,750-2,850 units from 2,524 units delivered in the prior-year quarter (considering the midpoint) at an average price of $950,000-$960,000 (suggesting a decline from $1,059,100 a year ago).

Higher land, labor and raw material costs, along with high incentives, are expected to put pressure on the fiscal third-quarter margins. Toll Brothers expects the adjusted home sales gross margin to be 27.7%, implying a decrease from 29.3% reported in the year-ago period. SG&A expenses are estimated to be 9.2% of home sales revenues, indicating a rise from 8.6% reported in the year-ago period. The company expects the effective tax rate to be 26%.
Our Estimates
Our model predicts home sales revenues to decline 0.7% year over year to $2.66 billion due to a lower ASP projection of $955,300 (down 9.9% year over year). We expect deliveries to grow 10.1% year over year to 2,779 units in the quarter.

We expect net signed contracts to be around 2,904 units, indicating an improvement of 29.3% from the prior-year reported figure.

Our model predicts a backlog of 7,217 units, indicating a decline of 1.1% from the year-ago period. The same for the backlog (in values) is pegged at $7.57 billion, implying a decline of 3.9% from the $7.87 million recorded at the third quarter of fiscal 2023-end.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Toll Brothers this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here, as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3.

Peer Releases

Meritage Homes Corporation MTH reported impressive second-quarter 2024 results, wherein the earnings and total closing revenues topped the Zacks Consensus Estimate and grew year over year.

MTH's quarterly results were backed by resilient housing demand and the company's progress in delivering quick-turning and affordable move-in-ready homes. Meritage Homes now expects 14,750-15,500 home closings for the year, up from the prior expected range of 14,500-15,000. The closings are now likely to generate revenues between $6.1 billion and $6.3 billion, up from the priorly expected range of $6-$6.2 billion.

NVR, Inc. NVR reported mixed second-quarter 2024 results, with earnings missing the Zacks Consensus Estimate while Homebuilding revenues surpassed the same. On the other hand, both metrics increased on a year-over-year basis.

The upside was backed by improved demand trends, which resulted in higher settlements. Although the cancelation rate increased during the second quarter, growth in new orders and increased ASP of new orders are encouraging for the company's prospects. Settlements in the quarter were up 11% year over year to 5,659 units. New orders increased 3% from the prior-year quarter's level to 6,067 units. On a unit basis, backlog at the end of Jun 30, 2024, improved 3% from the prior-year quarter's figure to 11,597 homes and 6% on a dollar basis to $5.45 billion.

PulteGroup Inc. PHM reported stellar results in the second quarter of 2024, wherein earnings and revenues handily beat the Zacks Consensus Estimate. On a year-over-year basis, both the bottom and top lines increased.

PHM saw significant benefits from key factors that drove its success. The company's balanced operating model resulted in increases in closings, average sales price and gross margin, which collectively led to a 19.3% increase in EPS. Effective management of sales price, pace and starts on a community-by-community basis enabled the company to achieve high returns on invested capital and equity, evidenced by a 27.1% return on equity over the past 12 months.

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