California's Housing Blues Not Enough to Muffle Toll Brothers Tune, But Is the Fed?
Apart from drooping California sales, Toll Brothers (TOL) - Get Reportannounced nothing but good tidings in its fiscal second quarter as the aging population of America and investments in multi-family housing began to pay dividends.
Toll Brothers beat analysts' expectations of 46 cents per share, reporting earnings of 51 cents a shares on revenue of $1.12 billion in its fiscal second quarter.
The news appears to have come as a relief to investors, as shares, which have trading down since the end of April, surged more than 8% in Tuesday morning trading. Shares traded up 7.7%, or $2.11, to $29.21 a piece.
And management followed the morning's earnings and revenue beat with further optimism, assuring analysts that the California market was bound for improvement.
Company followers wondered if there were other markets that offset the headwinds in California, and Toll Brothers pointed to a number of them, including Seattle, which led the company in sales per community, Northern Virginia, Dallas, Reno, Las Vegas and Denver, among others.
In terms of improvement in California, one thing management is hopeful for is that it can expand its city living segment, including in Southern California areas such as Newport Beach, Pasadena and Santa Monica.
"Toll Brothers has done a remarkable job in apartments," TheStreet's founder Jim Cramer said Tuesday. "People don't think of them as apartments, but in the city initiative they have, they are great selectors of urban real estate. Don't just think of them as a homebuilder."
The company still awaits word from the Federal Reserve on interest rate hikes, but management did not appear overly concerned on Tuesday's call, noting that it's not going to close up shop simply because mortgage rates go up.
Unfortunately, housing market stocks sink or swim based on the next word from the Fed, according to Cramer, but he admits there is certainly cause for optimism here.
"The housing stocks are totally subject to the whims of whoever speaks next from the Fed," he said. "But this has been a remarkable quarter."
Another point of optimism for Toll is the company's active adult communities, which it says are still outperforming.
Management said on the call that luxury active adult living has attributed to its success this quarter and added that making the decision to move those communities into western markets like Reno, Las Vegas and Denver has made a big difference.
In the same period a year prior, the Horsham, Pa.-based luxury homebuilder reported earnings of 37 cents a share on revenue of $852.6 million.
Toll Brothers delivered 1,304 homes in the second quarter, representing a 31% increase in dollar terms and a 9% increase in units from the second quarter of fiscal 2015.
The builders' average price of homes delivered in the second quarter was $855,500, compared with $713,500 in the second quarter last year.
Toll Brothers also updated its guidance. The company is expecting to deliver between 5,800 and 6,300 in the current fiscal year with an average price range of $820,000 and $850,000.
The company delivered 5,525 homes in 2015 at an average price of $755,000. Projected revenue is expected to be between $4.76 billion and $5.36 billion in fiscal 2016 with gross margin of between 25.8% and 26.2%.
