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Toll Brothers (TOL) to Report Q4 Earnings: What's in Store?

Zacks Equity Research

Toll Brothers, Inc. TOL is scheduled to report fourth-quarter fiscal 2019 results on Dec 9, after the closing bell.

In the last reported quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 22% and 4.1%, respectively. However, on a year-over-year basis, earnings and revenues declined 20.6% and 7.7%, respectively, mainly attributable to soft demand and lower margins.

Markedly, Toll Brothers reported better-than-expected earnings in the last four quarters, with the average surprise being 17.5%.

This  luxury homebuilding company — which shares space in the Zacks Building Products - Home Builders industry with Lennar Corporation LEN, NVR, Inc. NVR and D.R. Horton, Inc. DHI — has broadly underperformed the industry year to date. The stock has gained 21.8% compared its industry’s growth of 50.4% in the said period.

Toll Brothers Inc. Price and EPS Surprise

Toll Brothers Inc. Price and EPS Surprise
Toll Brothers Inc. Price and EPS Surprise

Toll Brothers Inc. price-eps-surprise | Toll Brothers Inc. Quote

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Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been unchanged at $1.29 per share over the past 30 days. This indicates a decrease of 38% from the year-ago reported figure.

The consensus mark for revenues is pegged at $2.18 billion, suggesting a decline of 11.4% from the year-ago quarter.

Factors to Note

Toll Brothers is expected to have generated lower earnings, given reduced demand owing to softness in the high-end housing market. Lower unit closing and average selling prices, owing to mix shift, are expected to have affected its top line in the to-be-reported quarter.

Indeed, lower mortgage rates — given Fed’s dovish stance — and stable job market have been benefiting homebuilding companies since the beginning of 2019. However, softness in the high-end housing market is expected to reflect on fiscal fourth-quarter results. Notably, demand in the high-end housing market has been declining in recent times. The main reason behind the same was reduced activity of wealthy overseas purchasers, many of whom seek out amenity-rich, full-service communities with on-site property management. This is mostly affecting California, which typically accounts for more than one third of purchases by Chinese buyers and the products that are sold at a high price point in New York. Again, reduced SALT deductions — particularly in high-tax states like California, New York, New Jersey and Connecticut — have been impacting higher-end real estate markets.

The Zacks Consensus Estimate for deliveries is pegged at 2,571 units, suggesting a 5.1% decrease from the prior-year figure but an increase of 28.9% year over year. Meanwhile, the consensus estimate for the company’s average selling price for the units delivered is currently pegged at $852 million, indicating a decrease of 5.9% year over year and 3.3% sequentially.

However, improving demographics, low interest rates, record low unemployment, continued wage growth, and limited new and resale inventory in many markets served are expected to have offset the above-mentioned headwinds in the fiscal fourth quarter.

Meanwhile, higher operating expenses and lower gross margin and revenues are expected to have weighed on its bottom line in the quarter.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for Toll Brothers this time around. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive surprise. This is not the case here, as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Toll Brothers currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
 
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
 
Lennar Corporation (LEN) : Free Stock Analysis Report
 
NVR, Inc. (NVR) : Free Stock Analysis Report
 
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