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Toll Reports Best Quarter in 10 Years

Thursday, May 25, 2017

Toll Brothers, (NYSE:TOL) on Tuesday reported net income of $124.6 million, or $0.73 per share diluted, for its fiscal second quarter ended April 30, 2017. The gain compares to net income of $89.1 million, or $0.51 per share diluted, in FY 2016’s second quarter.

Toll shares shot up 3.6% to $39.40 in premarket trading Tuesday on the news.

“This was the best spring selling season we have had in over 10 years,” said Douglas C. Yearley, Jr., Toll CEO. “The number of contracts in FY 2017’s second quarter was the highest since FY 2005’s third quarter, and the number of contracts per community was the highest since FY 2006’s second quarter.”

Pre-tax income was $199.2 million, up from $140.4 million in FY 2016’s second quarter. Second quarter FY 2017 included inventory write-downs of $4.3 million, compared to $6.4 million in FY 2016’s second quarter.

Revenues were $1.36 billion as home building deliveries rose 26% to 1,638 units and increased 22% in dollars compared to FY 2016’s second quarter. The average price of homes delivered was $832,400, compared to $855,500 one year ago. The drop in the average price of homes delivered, as well as in contracts and backlog, was due to mix changes.

Net signed contracts of $2.02 billion and 2,511 units rose 23% in dollars and 26% in units, compared to FY 2016’s second quarter. The average price of net signed contracts was $804,200, compared to $825,500 one year ago.

On a per-community basis, FY 2017’s second-quarter net signed contracts was 7.82 units per community, compared to second-quarter totals of 6.80 in FY 2016, 7.43 in FY 2015, and 7.14 in FY 2014.

For the first three weeks of FY 2017’s third quarter, beginning May 1, 2017, non-binding reservations deposits were up 12% in units, compared to the same period in FY 2016.

Backlog of $5.00 billion and 6,018 units rose 19% in dollars and 22% in units, compared to FY 2016’s second-quarter-end backlog. The average price of homes in backlog was $831,000, compared to $848,600 one year ago.

Gross margin, as a percentage of revenues, was 21.0% in FY 2017 second quarter, compared to 22.0% in FY 2016’s second quarter. Adjusted Gross Margin, which excludes interest and inventory write-downs (“Adjusted Gross Margins”), was 24.3%, compared to 25.7% in FY 2016’s second quarter. SG&A as a percentage of revenue was 10.8% in FY 2017’s second quarter, compared to 11.5% in FY 2016’s second quarter.

Other income and income from unconsolidated entities totaled $61.0 million, compared to $23.8 million one year ago.

Toll ended its second quarter with 316 selling communities, compared to 321 at FY 2017’s first-quarter end, and 299 at FY 2016’s second-quarter end.

Based on FY 2017’s second-quarter-end backlog and the pace of activity at its communities, the company estimates it will deliver between 6,950 and 7,450 homes in FY 2017, compared to previous guidance of 6,700 to 7,500 units, at an average delivered price for FY 2017’s full year of between $775,000 and $825,000 per home. This translates to projected revenues of between $5.4 billion and $6.1 billion in FY 2017, compared to $5.17 billion in FY 2016.

Robert I. Toll, executive chairman, stated: “We believe our strong results are being supported by the release of pent-up demand. Single-family housing starts, while rising to 835,000 in April, are still just half the previous peak of 1.72 million in 2005.”

He continued, “Many factors are bringing buyers off the fence right now, including low interest rates, urgency created by the limited supply of resale and new homes, and improving personal balance sheets and credit profiles. Our luxury buyers are further benefiting from a solid employment picture, strong consumer confidence, a robust stock market and increasing equity in their existing homes.”

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