While everyone looking to buy a home seems to be rebuffing several offers, Toll Brothers, which builds luxury homes, seems to be doing just fine, even as interest rates rise.
The Fort Washington, Pa., homebuilder blew up Wall Street estimates for its second fiscal quarter ending April 30.
Toll Brothers earned $220.6 million, or $1.85 per share in the quarter, compared with $1.01 in the prior quarter. Revenue jumped 18% to $2.28 billion from $1.93 billion.
A survey of analysts by FactSet was looking for quarterly earnings of $1.50 per share on total revenue of $2.08 billion.
Wider margins, bigger backlog
Toll Brothers delivered 2,407 homes in the quarter, up 6% from a year earlier, while gross profit margins widened to 24.1% from 21.9% a year earlier.
It pledged to sell 2,874 homes, down 18% but in line with company expectations. The contract value of these homes was $3.1 billion, the highest of any Toll Brothers neighborhood.
Backlog at April 31 was $11.7 billion, up 35% from a year earlier. Homes on hold were 11,768, up 16%.
And the company maintained the line on cost, selling, general and administrative expenses as a percentage of home sales revenue of 11.1%, compared to 11.9% in the second quarter of the year. last year.
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“While demand is still strong, over the past month it has moderated from the unprecedented pace of the past two years as buyers adjust to higher mortgage rates and other macro conditions.” , CEO Doug Yearley said.
“Our strategy of expanding our product lines, price points and geographies, coupled with our industry-leading luxury brand, positions us well in the current environment,” he added. “Our attractive land portfolio allows us to be very selective with new land opportunities and enables us to continue to use excess cash flow to reduce debt and return capital to shareholders.”
Higher rates, fewer refinances
Interest rates have risen significantly as the Federal Reserve aims to tackle runaway inflation.
Martin Baccardax of TheStreet reports that last week mortgage rates fell slightly for a second week. The 30-year fixed rate for loan balances below $647,200 fell 3 basis points to 5.46% for the week ended May 20. But the move still leaves the benchmark rate near its highest since December 2018.
And TheStreet report notes that demand for financing is muted as borrowing costs and new home prices have soared.
The Wall Street Journal reported that mortgage lenders are now cutting staff and taking other measures as fewer owners refinance. Refinances have made up the bulk of mortgage lending in the United States throughout the pandemic., the
Through it all, Yearley said, “many fundamental drivers of housing demand remain firmly in place. These include favorable demographics, the significant imbalance between housing supply and demand, and migration trends. We believe these factors will support a healthy housing market over the long term.”
A week ago, Toll Brothers’ board authorized management to buy back up to 20 million shares. The authorization has no expiry date.
At last check, shares of Toll Brothers were trading up 6.7% at $47.52. The stock rebounded from its 52-week low of $43.76, set on May 12.