Toll Brothers’ fiscal 2Q16 earnings
For fiscal 2Q16, Toll Brothers’ (TOL) earnings were $89.1 million, or $0.51 per share, versus net income of $67.9 million, or $0.37 per share, in fiscal 1Q16. The company beat Wall Street’s expectation of $0.46 per share.
After Toll Brothers reported fiscal 2Q16 earnings on May 24, 2016, its stock rose by $2.41 to close the day at $29.51. Also, Toll Brothers’ SG&A (selling, general, and administrative) expenses fell as a percentage of revenues to 11.5% in fiscal 2Q16 from 12.6% in the same quarter last year.
Operating income rose
Homebuilders do have some operating leverage, meaning that costs don’t necessarily rise at a fixed percentage as revenues rise. Thus, margins can expand as the company grows.
For example, if revenues rise 45%, the company doesn’t need 45% more people in the corporate office.
If you are interested in investing in the homebuilding sector via an ETF, you can consider the SPDR S&P Homebuilders ETF (XHB).
Management’s comments on the state of the industry
Douglas C. Yearley, Jr., Toll Brothers’ CEO, stated, “Our revenues this quarter were up 31%, compared to last year while pre-tax income rose 62% and net income rose 31%. Improvements in gross margin, SG&A leverage and pre-tax margin contributed to a significant earnings jump this quarter.”
“Our contracts this quarter rose 3% in both dollars and units compared to one year ago. This modest growth was achieved despite a decline of 93 units in California contracts compared to one year ago. We believe the California market is still strong. Both Southern and Northern California were among our top 5 regions in contracts per community this quarter. Our drop in California contracts reflects a temporary lack of inventory for sale; strategic price increases we have implemented to meter out sales in communities with large backlogs; and the lingering impact on our Porter Ranch community of a leak from a nearby natural gas storage facility, which appears to be heading toward a positive resolution.”
In the final part of this series, we’ll look at Toll Brothers’ geographic results in fiscal 2Q16.