Toll Brothers: Earnings Preview

May.24.11 | About: Toll Brothers (TOL)

Toll Brothers Inc. (NYSE:TOL) will release its results for the second quarter of fiscal 2011 before the market opens on May 25, 2011. Pennsylvania-based Toll Brothers incurred a wider loss of 10 cents per share in the first quarter of the fiscal year compared with the Zacks Consensus Estimate of a loss of 8 cents per share.

For the upcoming quarter, the Zacks Consensus Estimate for Toll Brothers is pegged at a loss of 5 cents per share, reflecting an annualized growth of 78%, without any upside potential.

With respect to earnings surprises, the company posted an average earnings surprise of 68.9% in the trailing four quarters. This implied that the company has beaten the Zacks Consensus Estimate in three quarters and missed in one quarter only.

First Quarter Review

Net income of the company was $3.4 million or 2 cents per share compared with a net loss of $40.8 million or 25 cents per share during the same month last year. First quarter 2011 results included a net tax benefit of $20.4 million compared with a net tax benefit of $16.0 million in fiscal 2010.

Total revenue rose 2.26% to $334.1 million from $326.7 million in the year-ago quarter driven by higher delivery prices despite a drop in deliveries. Average delivery prices spiked 7% year over year to $586,000 while home building deliveries dropped 4% year over year to 570 units.

Toll Brothers signed 581 gross contracts during the quarter at an average price of $561,000. However, total net contracts signed were 548 at an average price of $561,000. The quarter-end backlog totaled 1,472 units (valuing at $825.2 million) compared with 1,461 units (valuing at $840.2 million) a year ago.

The company expects to deliver 2,200 to 2,800 homes in fiscal 2011 at an average price of $540,000 to $565,000.

Estimate Revisions Trend

For the second quarter of 2011, estimates remained unchanged at a loss of 5 cents per share. The analysts remain cautious on the stock based on sluggish growth in the U.S construction industry.

Agreement of Estimate Revisions

None out of the 14 analysts covering the stock made any revision in the estimates since the release of the company’s first quarter results in February. The analysts seem to be cautious on the stock given the macroeconomic conditions in the U.S. and growing competition in the industry.

Magnitude of Estimate Revisions

Following the second quarter earnings release in February, the second quarter loss per share is projected at 5 cents per share and remained unchanged since then.

Out Take

A depressed housing industry is the biggest concern for any homebuilder including Toll Brothers. Besides, there is no sign of a speedy recovery. Thus, a poor performance in terms of housing is very likely for the company.

However, Toll Brothers continuous efforts to fight the situation and minimize its loss as much as possible are worth mentioning. The company’s aggressive purchase of lots is aimed at fully utilizing the growing demand once the pace of recovery gains momentum.

Hence, the company retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.