Toll Brothers net income for Q4 was just shy of a nice round $100 million. It's full fiscal year and fourth quarter earnings release blasted this morning to a chorus of kudos from home building company equity analysts. Here's the link to Wall Street Journal staffer Ben Fox Rubin's take on the earnings report (paywall). First, we'll take a look at key first-blush observations from five home building analysts who cover Toll Brothers: Stephen East, ISI Housing Research
TOL easily beat consensus and our higher estimate with the quality of that beat being solid. Moreover, management's FY14 Guidance supports our $1.72 Estimate, which is sharply above Consensus of $1.52. Finally, the company highlighted Orders were flat in the past 5 weeks of the new quarter, yet the first week was down nearly 50% due to Hurricane Sandy compares.
David Goldberg, UBS AG
As previously released (11/6 in conjunction w. the announcement of the Shapell acquisition), unit orders +6% YOY, ahead of our flat estimate. In its most recent release, mgmt. commented that orders for the first 5 weeks of F1Q14 were flat YOY, in part driven by tough comps (related to Hurricane Sandy) and a leveling off of demand. Despite the commentary, we still expect the company to post order growth >20% in the coming year, driven by a combination of: 1) rising community counts from organic growth and 2) the benefit from the Shapell acquisition (which should close in early 2014), which we expect to add ~400 orders (8% of the F13 total).
Buck Horne, Raymond James & Assoc.
City Living driving margin growth. Toll's reported gross margin improved 30 bp sequentially and 80 bp y/y to 25.4%. This was 10 bp below our comparable 25.5% estimate, but still among the industry's best. Toll issued FY14 guidance, expecting to deliver 5,100 to 6,100 homes between $670,000 and $720,000 (we were previously modeling 5,600 homes priced at $660,000 in FY14). We believe the City Living platform will be a meaningful differentiator for Toll that will contribute to outsized margin leverage as it grows from 6% of revenue this year to as much as 13% by FY15.
Michael Rehaut, JP Morgan
Upside to our estimate was driven by lower SG&A of 8.9% vs. our 10.1%E, as well as higher Other income (which includes a portion of the $7.1 million in Gibraltar income) and lower taxes, representing $0.04, $0.04 and $0.01/share of upside, respectively. Gross margins (ex-charges, including interest) of 21.5% were roughly in-line with our 21.4%E. The company also provided FY14 closings guidance of 5,100-6,100, the midpoint of which represents 34% growth, modestly above our 30%E, along with ASP guidance of $670-$720K, the midpoint of which represents 9% growth, below our $732K estimate, or up 15%.
Adam Rudiger, Wells Fargo
1) Company-specific commentary was mostly positive in our view, with guidance pointing to solid community count and revenue growth in 2014. Further, TOL's pending acquisition of Shapell Homes increases the company's exposure to strong, land constrained California markets. 2) However, we didn't find any overly exciting data points on the macro environment, Excluding the first week of November, where order comparisons were negatively impacted by a timing shift related to Hurricane Sandy, orders have been flat yr/yr for the last five weeks. Year-end community count is up 3.6% suggesting a modest yr/yr decline in orders/community. Additionally, if last year's orders were not impacted by Hurricane Sandy, the 6% order growth seen in Q4 2013 may have been closer to flat orders, in our view. Neither data point suggests new homebuyer demand has regained any momentum since slowing over the summer, in our view.
Our preliminary take-away is this. Toll Brothers management and team held a clinic on how to manage their enterprise, given the opportunities that surfaced early last year and crescendoed this past Spring. It's an organization that knows who it is and what it does well, despite its heft and positioning.
So, within its own context, expectations are that the Toll organization will continue to knock it out of the park.
The worry, however, shows up in light of the exogenous issues that may or may not derail momentum for the entire sector.
Next update will look at Toll and the wall of worry. As a bellwether, what goes down with Toll may preview what's in store for others. Toll's pure-play against a higher-end luxury buyer offers both lessons for others and constraints upon assumptions that apply to builders competing in the entry-level and lower-mid-level move-up programs.
Late in the day yesterday, the business press swarmed the Toll earnings report for its larger than life implications.
What were the numbers saying about (faded) demand mojo in the high-end market? Here's Wall Street Journal staffer Kris Hudson's take (paywall). Does Toll's performance in the luxury segment point to how housing's in a fundamentals bubble--where house prices have outrun household income growth?
Here's CNBC's interview with Toll ceo Doug Yearley on the subject. What can one infer about headroom for the housing recovery writ large from Toll's flat orders growth in the past several months.
Here's Forbes' Maggie McGrath with a dive into the Q4 numbers and Toll's guidance on 2014.
Here's some of post-call analysis we're seeing on Toll this morning (Wednesday).