Toll Brothers Tanks on Earnings

Toll Brothers

has released its FY 2013 first quarter earnings and the results aren't pretty. EPS finished up on a year-over-year basis, rounding out the quarter at $0.03 versus a loss of $0.02 in Q1 FY 2012. However, the Horsham, Pennsylvania home builder flew in below expectations, as analysts hoped for an EPS of $0.10. On the revenue front, Wall Street wanted to see $502.17 million for the quarter. While up 32 percent year-over-year, Toll Brothers missed estimates by a wide margin, generating $424.6 million in revenue.

Housing starts dropped 8.5 percent in January, according to the US Department of Housing and Urban Development. After finishing December at 973,000, this figure dropped to 890,000 in January. Starts of new apartment complexes dropped most during the month. In December, 352,000 new complexes with at least five units were started. However, this figure dropped to 260,000 in January. Figures dropped considerably in the Midwest and Northeast, falling 50 and 33 percent, respectively. Meanwhile, in the South and West, housing starts increased four and 17 percent, respectively. Overall, housing starts dropped 8.5 percent nationally in January. The reduced demand for new houses during the month likely contributed to Toll Brothers' lackluster quarter.

On a year-over-year basis, backlogs rose 66 percent in dollars and 57 percent in units. The firm finished the quarter with $1.86 billion in backlogs spread over nearly 2,800 units. Net contracts rose 38 percent in dollars and 49 percent in units as compared to Q1 FY 2012. The company generated over $614 million on 973 contracts during the quarter.

Despite its weak first quarter, Toll Brothers CEO Douglas C. Yearley, Jr. is confident in the firm's immediate future. He mentions that demand has increased and that “it appears that momentum is building.” Yearley goes on to state: “We are continuing to gain market share and see little competition from local private builders. As the Spring selling season kicks off, we are also enjoying increasing pricing power due to the release of pent-up demand colliding with limited supply in the affluent markets where we operate.”

After hovering in the $36 to $37+ range for most of the past month, Toll Brothers is down to a bit above $35. It is at its lowest point since dipping to $35.03 on February 5. Toll Brothers is down around 4.5 percent on Wednesday.