Toll Brothers, the largest luxury homebuilder in the United States, reported first-quarter results well below analysts' estimates, hurt by lower selling prices and higher costs, sending its shares down 5 percent before the bell.
U.S. home builders such as D.R Horton and PulteGroup, which target first-time and first-move up home buyers, have been able to take advantage of a recovering housing market by raising selling prices amid surging demand.
However, Toll — which targets affluent customers who typically make at least $100,000 a year — said the average selling price for homes delivered in the first quarter fell to $569,000 per house from $571,000.
While new orders for Toll jumped 49 percent to 973 homes, the average selling price for these homes fell 7.5 percent to $631,000 from a year ago.
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Toll's shares, which have gained 55 percent in the last 12 months as the U.S. housing market picked up, were down 5 percent before the bell. They closed at $36.90 on the New York Stock Exchange on Tuesday.
The company said it earned 3 cents per share on revenue of $424.6 million in the first quarter ended Jan. 31.
Analysts on average expected earnings of 10 cents per share, excluding items, on revenue of $502.2 million, according to Thomson Reuters I/B/E/S.
Selling, general and administrative costs jumped 12 percent.
Toll also said it would enter the apartment rental business to take advantage of rising rents and low supply. The company said it has assembled sites for about 4,000 rental apartment units and expects the new business to start making money from 2015. Toll added that it took control of two student housing projects totaling about 3,095 beds.
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A tight credit market and high unemployment rates have encouraged consumers to rent rather than own homes.
Rents have risen for 12 straight quarters and apartment vacancy rates are the lowest since the third quarter of 2001, according to real estate research firm Reis.
No. 3 U.S. home builder Lennar also said last month it would venture into the apartment rental market.