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Luxury-Home Builder Toll Brothers Beats Q2 Profit, Revenue Estimates

Toll Brothers earned $1.85 a share in its fiscal second quarter on 18% higher revenue.
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While everyone out there who wants to buy a home seems to be fighting off multiple offers, Toll Brothers, which builds luxury homes, appears to be doing just fine, even as interest rates rise.

The Fort Washington, Pa., homebuilder blew away Wall Street estimates for its fiscal second quarter ended April 30.

Toll Brothers earned $220.6 million, or $1.85 a share in the quarter compared with $1.01 in the year-earlier quarter. Revenue jumped 18% to $2.28 billion from $1.93 billion.

A survey of analysts by FactSet had been looking for quarterly earnings of $1.50 a share on total revenue of $2.08 billion.

Wider Margins, Bigger Backlog

Toll Brothers delivered 2,407 homes in the quarter, up 6% from a year earlier, while gross-profit margins widened to 24.1% from 21.9% a year earlier.

It contracted to sell 2,874 homes, down 18% but in line with the company's expectations. The contract value of those homes was $3.1 billion, the highest in any Toll Brothers quarter.

The backlog in April 31 was $11.7 billion, up 35% from a year earlier. Homes in the backlog were 11,768, up 16%.

And the company held the line on costs, with selling, general and administrative expense as a percentage of home-sales revenue coming in at 11.1%, narrowed from 11.9% in the year-earlier second quarter.

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"While demand is still solid, over the past month it has moderated from the unprecedented pace of the past two years as buyers adapt to higher mortgage rates and other macroeconomic conditions," said CEO Doug Yearley. 

"Our strategy of broadening our product lines, price points and geographies, coupled with our industry-leading luxury brand, positions us well for the current environment," he added. "Our attractive land portfolio allows us to be highly selective with new land opportunities and enables us to continue using excess cash flow to reduce debt and return capital to shareholders.”

Higher Rates, Fewer Refinancings

Interest rates have risen significantly as the Federal Reserve aims to fight raging inflation.

TheStreet's Martin Baccardax reports that last week, mortgage rates edged lower for a second week. The 30-year fixed rate for loan balances of less than $647,200 fell 3 basis points to 5.46% for the week ended May 20. But that move still leaves the benchmark rate near its highest since December 2018.

And TheStreet report notes that demand for financing is muted as borrowing costs and prices for new homes have soared. 

The Wall Street Journal reported that mortgage lenders are now cutting staff and taking other actions as fewer homeowners are refinancing. Refinancings made up the bulk of U.S. mortgage originations throughout the pandemic., the

Through it all, Yearley said, "the many fundamental drivers of housing demand remain firmly in place. These include favorable demographics, the significant imbalance between the supply and demand for homes, and migration trends. We believe these factors will support a healthy housing market over the long term."

A week ago Toll Brothers' board authorized management to buy back as many as 20 million shares. The authorization has no expiration date.

At last check Toll Brothers shares were trading up 6.7% at $47.52. The stock has bounced off its 52-week low of $43.76, set May 12.