Equity research: Toll Brothers’ Q4 and FY13 revenues increased
Revenues increased in Q4
Toll Brothers reported fourth quarter revenues of just over $1 billion and full-year revenues of $2.67 billion. These numbers easily beat the Street expectations of $987 million and $2.62 billion. This was an increase of 65% from the same quarter last year. For the full year, revenues were 42% higher. While these numbers were great on a year-over-year comparison, we’re starting to see the effects of increasing interest rates and home prices on housing demand. The company reported that contract signings were up about 6% for the quarter and are flat for the first six weeks of Q1 (which is still in progress).
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Pay attention to both units and dollar values
The thing to watch with the homebuilders, especially in this environment where inventory is tight, is comparisons in units and dollar volume. In particular, while Toll reported contract signings were up 6% in unit terms, they were actually up 23% in dollar terms. This is because prices are rising very rapidly—especially at the high end of the market. Their average selling prices increased from $651,000 to $703,000. While this isn’t necessarily an apples-to-apples comparison, it does speak to strength in house prices overall. Some of it is rising real estate prices in general, and some of it is better performance that the higher price points. And finally, some of it is due to simple geography—Toll is situated in the best-performing markets.
Deliveries and backlog
Deliveries in Q4 rose 65% in dollar terms and 36% in units. For the full year, deliveries increased 42% in dollars and 27% in units. Backlog (which is an indication of future revenues) increased 57% in dollars and 43% in units. At the end of the year, Toll had approximately 48,600 lots owned and optioned compared to 47,200 last quarter and 40,400 the year before. The company finished the year with 232 selling communities compared to 225 last quarter and 224 the year before. With the Shapell acquisition, it anticipates ending FY 2014 with between 250 and 290 selling communities. This represents a lot of potential growth.