Toll Brothers rises to 5-year high after profit beats estimates

Luxury home builder signals new home market recovery

Toll Brothers rises to 5-year high after profit beats estimates Toll Brothers rises to 5-year high after profit beats estimates

Aug. 22 (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury-home builder, reported fiscal third-quarter earnings that beat analysts’ estimates as revenue increased.

Net income was $61.6 million, or 36 cents a share, for the three months ended July 31, compared with $42.1 million, or 25 cents, a year earlier, the Horsham, Pennsylvania-based company said today in a statement. The average estimate of 18 analysts in a Bloomberg survey was for earnings of 18 cents a share. The year-earlier results included a $38.2 million tax benefit.

The U.S. new-home market is beginning to recover as historically low mortgage rates and a tight inventory of existing houses push more people to consider buying from builders. The improving market is enabling homeowners to sell starter houses and move up to larger properties, such as those offered by Toll, which caters to customers with better access to cash and credit than first-time buyers usually have.

“Housing is on the mend,” Executive Chairman Robert I. Toll said in the statement. “We do, however, remain cautious in our optimism as we believe consumer confidence remains fragile and subject to the impact of negative economic and political headlines.”

Revenue rose to $554.3 million in the third quarter from $394.3 million a year earlier, Toll said. Pretax income increased more than 10-fold to $43 million. The company delivered 963 homes to buyers, a 39 percent increase.

 Low Leverage

“Toll Brothers is one of the highest-quality homebuilders in the sector,” Vincent Foley and Cedric Morris, credit analysts with Barclays Plc, wrote in an Aug. 20 note. “Its management team is strong, its balance sheet is relatively flush with cash, its leverage is low and its operations should remain profitable.”

The average price of the homes Toll delivered in the third quarter increased to $576,000 from $557,000 in the second quarter. The gross margin, which excludes interest and writedowns, widened to 24.4 percent from 23.4 percent a year earlier.

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