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Toll Brothers profit beat is clouded by weakness in orders

Key Points
  • Toll Brothers reported a better-than-expected quarterly profit on higher home prices.
  • Orders declined, however, hinting at weaker demand for new homes.
  • Slowing economic growth and recent stock market volatility, triggered by an escalating U.S.-China trade war, have made some Chinese buyers more cautious about investing in the U.S. property market.
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Toll Brothers beats estimates on revenue, shares up after hours

Toll Brothers reported a better-than-expected quarterly profit on higher home prices, but its shares fell as orders declined, hinting at weaker demand for new homes.

Slowing economic growth and recent stock market volatility, triggered by an escalating U.S.-China trade war, have made some Chinese buyers more cautious about investing in the U.S. property market, potentially weighing on homebuilders.

Orders, an indicator of future demand, fell 3.2% to 2,241 units in the third quarter. The company also sold fewer homes in the quarter.

But lower mortgage rates, a limited supply of new and existing homes as well as a strong job market have helped Toll raise prices even though demand remains choppy.

A contractor moves roofing material on a home under construction at the Toll Brothers Cantera at Gale Ranch housing development in San Ramon, Calif.
David Paul Morris | Bloomberg | Getty Images

Toll, which caters to rich customers who can afford homes that cost $2 million or more, increased its average selling price in the quarter by 3.4% to $881,200.

Shares of the company were down about 2% in volatile trading after the bell. The stock has risen 10.6% this year.

"Toll's stock is not receiving a premium versus its forward value because of the concerns with the luxury housing market, which has been affected by tax changes, decline of Asian buyers and late economic cycle concerns," JMP Securities analyst Peter Martin said.

Toll stock trades at 8.8 times forward earnings, a discount to homebuilders D.R. Horton, which trades at 10.6 times and PulteGroup at 9.1 times.

Toll Brothers said it sold 1,994 homes in the third quarter, down from 2,246 a year earlier, while orders fell 3.2%.

Backlog at the end of the quarter was $5.84 billion and 6,839 units, compared with $6.48 billion and 7,100 units a year earlier.

Net income fell to $146.3 million, or $1 per share, in the quarter ended July 31 from $193.3 million, or $1.26 per share.

Revenue fell 7.7% to $1.77 billion, but still beat expectations.

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Key Points
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  • Last week, Walmart also topped Wall Street’s expectations and raised its full-year outlook.