By Brian Nelson, CFA
Back on February 20, luxury homebuilder Toll Brothers (TOL) released first-quarter results for fiscal 2024. Both revenue and GAAP earnings per share came in better than expected. Home sales revenue increased 10% in the quarter from the year-ago period, while delivered homes advanced 6%. Impressively, net signed contract value was up 42% from last year’s quarter, while the number of contracted homes increased 40%. Its backlog fell 18%, to $7.08 billion, however, but the company continues to benefit from higher home sales gross margins.
Management’s commentary on the quarter was upbeat in the press release:
We are very pleased with our strong first quarter results. We delivered 1,927 homes at an average price of approximately $1.0 million, generating home sales revenues of $1.93 billion. Our adjusted gross margin in the quarter was 28.9%, a 140-basis point increase compared to Q1 2023, and our SG&A expense, as a percentage of home sales revenues, improved by 20 basis points year-over-year to 11.9%. This combination of top line growth and greater operating efficiency led to earnings of $2.25 per diluted share in the quarter, a 32% increase over last year’s first quarter.
We experienced another quarter of solid demand. We signed 2,042 net contracts for $2.06 billion, up 40% in units and 42% in dollars compared to last year’s first quarter. Since mid-January, we have seen a marked increase in demand coinciding with the start of the spring selling season. With a healthy job market, improving consumer sentiment, and continued low levels of resale inventory, we are optimistic that demand for new homes will remain strong in 2024.
The company noted that it raised its full-year guidance across all of its key metrics thanks in part to a strong start to the all-important spring selling season. For the full fiscal year 2024, management expects to deliver between 10,000-10,500 homes at an average delivered price per home of $940,000-$960,000. Inclusive of a pre-tax land sale gain, management now believes that it will earn between $13.25-$13.75 per share for fiscal 2024, with return on beginning equity of ~21%. The company ended the quarter with $754.8 million in cash and a debt-to-capital ratio of 28%. Though we don’t include any homebuilder in the simulated newsletter portfolios, it’s good to see things are progressing well at Toll Brothers.
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Tickerized for holdings in the ITB.
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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