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Luxury home builder Toll Brothers said Wednesday that quarterly net signed contracts had increased for the first time in four years as home buyers appeared more confident and less concerned about prices, sending its shares up more than 11 percent.
Toll said preliminary results for the third quarter ended July 31 showed a 42 percent drop in homebuilding revenue to $461.3 million.
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Net signed contracts rose 3 percent to 837 units, although their dollar value declined. The company said this was the first time in 16 quarters that net signed contracts had exceeded year-earlier figures.
Horsham, Pennsylvania-based Toll also noted that signed contracts improved from its April quarter, even though they typically decline from the second quarter to the third.
Toll's cancellation rate was 8.5 percent in the quarter, down from 19.4 percent a year earlier and the lowest since the second quarter of 2006.
However, the cancellation rate was higher among the more expensive contracts, a sign that some luxury buyers remain cautious. The average value of net contracts signed was $535,000, but was far higher for cancellations, at $704,000.
Confident Home Buyers
Many markets are improving and buyers appear to have more confidence, Chief Executive Robert Toll said.
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"Price is no longer the overwhelmingly dominant factor," Toll said in a statement. "The consumer interest we saw in April and May leveled off a bit from mid-June through mid-July, but has regained momentum more recently."
The lower cancellation rate and the CEO's comments about prices "support our view that the company is gaining sufficient share to more than offset weakness among high-end buyers," UBS analyst David Goldberg said.
Meanwhile, the company estimated third-quarter pretax writedowns for operating communities, land and land options, and joint ventures at $90 million to $160 million, which Barclays analyst Megan McGrath said were higher than expected.
They include significant writedowns on land Toll plans to sell.
The company plans to release full third-quarter results on Aug. 27. Analysts on average expect the quarterly loss to widen to 40 cents per share, from 18 cents a year earlier. Estimates range widely, from a 3-cent profit to a 77-cent loss, partly reflecting uncertainty about the extent of writedowns.
Toll [TOL
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] shares rose $2.31, or 11.3 percent, to $22.79 in morning trading on the New York Stock Exchange.
Including Wednesday's advance, the stock is up about 68 percent from its low in November. But a broader index of home construction stocks has more than doubled in that time.
Toll's lag against the index shows investors' concern about the luxury end of the housing market, analysts have said.
Data is a real-time snapshot *Data is delayed at least 15 minutes