Updated from 8:13 a.m. EDT
The long-predicted cooling-off in the housing market has yet to materialize in homebuilders' earnings.
To the contrary, in fact, at
. On Tuesday, the luxury builder reported a 29% jump in third-quarter earnings and said its contracts and backlog suggest the good times will keep rolling for quite some time.
Huntingdon Valley, Pa.-based Toll said profit rose to $68.2 million, or 90 cents a share, in the third quarter, from $53.5 million, or 70 cents a share, last year. The result beat analysts' estimates of 82 cents a share, according to Thomson First Call.
The upside was driven by better-than-expected gross margins -- which came in at 27.5% -- among other factors, as Toll was able to charge higher prices for its homes, noted analysts Paul D. Puryear and Rick T. Murray at Raymond James in a research report.
Contracts for new homes have seen a boom recently as buyers try to lock in low mortgages before they reflect the higher interest rates being driven in the bond market.
But unlike other homebuilders, Toll is seen as gaining more from a strong economy than from lower rates.
"Toll is specifically benefiting from an improvement in the economy and in consumer confidence," said Jack Kasprzak, managing director and analyst at BB&T Capital Markets. "Interest rates are less of a factor for Toll than for an entry-level type of homebuilder, for instance." Kasprzak said Toll's luxury houses keep it in favor among old people, who usually buy "move-up" homes at higher price points.
Kasprzak noted: "The demographics of the country are very favorable for Toll in the long run, with the active retirement segment intent on growing strong."
Even though higher mortgage rates are expected to hurt the real estate market in the following months, the luxury homebuilder is expected to keep on reaping strong earnings.
Toll said in a press release that it's "on pace for record results in 2003 and, it appears, for the next several years to come." The 2003 full-year consensus forecast is $3.28.
"Their backlog is very healthy, so the next few quarters are done, their visibility is excellent," said Kasprzak.
Contracts totaled $952.7 million, or 1,671 homes, the highest for any quarter in the company's history, and were 35% above last year's level. Toll's backlog at the end of the third quarter was $2.49 billion, or 4,411 homes, up 31% from a year ago.
Third-quarter revenue rose 19% to $693.7 million from $580.7 million a year ago. Homebuilding revenue climbed 20% to $678.5 million.
Shares of Toll were recently up 14 cents, or 0.5%, at $29.76.