Toll Brothers Inc. ((TOL)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Toll Brothers Inc. Earnings Call Reflects Mixed Sentiment
In the latest earnings call, Toll Brothers Inc. presented a balanced sentiment, combining optimistic highlights and some challenges. The discussion revealed positive developments such as an increase in net contracts and a strong adjusted gross margin. However, these were countered by factors like net income falling below expectations and higher SG&A expenses. The company’s strategic approach toward managing spec homes and land acquisitions indicates a cautiously optimistic outlook, resulting in an overall neutral sentiment.
Increase in Net Contracts
The company reported signing 2,307 net contracts worth $2.3 billion in the first quarter, marking a 13% increase in units and a 12% increase in dollar value compared to the previous year. This growth signifies robust demand and effective sales strategies.
Low Contract Cancellation Rate
Toll Brothers maintained a low contract cancellation rate of 2.4% of the beginning backlog, indicating strong buyer commitment and stable demand for their homes.
Strong Adjusted Gross Margin
The company’s adjusted gross margin for the first quarter was reported at 26.9%, surpassing guidance by 65 basis points. This strong margin highlights the company’s effective cost management and pricing strategies.
Healthy Deposit Conversion Ratio
The deposit conversion ratio was significantly high at 82%, compared to a five-year average of 70%, reflecting efficient conversion of deposits into contracts.
Solid Land Position
Owning or controlling approximately 56,000 lots, with 56% optioned, gives Toll Brothers flexibility and selectivity in land acquisition, positioning them well for future growth.
Extended Credit Facility
The company successfully extended its credit facilities’ maturities to February 2030 and increased its revolver to $2.35 billion, strengthening its financial position and liquidity.
Net Income Below Expectations
Despite positive sales metrics, net income and earnings per share were below expectations due to impairments and delays in the sale of a stabilized apartment property.
Higher SG&A Expenses
SG&A expenses were reported at 13.1% of home sales revenue, surpassing guidance by 40 basis points, primarily due to higher selling and marketing expenses.
Challenges in Specific Markets
The company faced mixed demand results, with certain markets experiencing pressure on sales due to affordability constraints and increasing inventories.
Impairments and Write-offs
The company recorded write-offs totaling $16.4 million in the home sale gross margin, related to pre-development costs and operating communities.
Forward-Looking Guidance
Toll Brothers maintained its full-year guidance, expecting deliveries of 11,200 to 11,600 homes at an average price between $945,000 and $965,000, with an adjusted gross margin of 27.25%. SG&A expenses are projected to account for 9.4% to 9.5% of home sales revenue. The company plans to repurchase $500 million in shares, supported by $2.3 billion in liquidity and a net debt to capital ratio of 21.1%.
In summary, Toll Brothers Inc.’s earnings call reflected a neutral sentiment with a mix of positive sales growth and operational challenges. While the company faces certain market pressures and higher expenses, its strong gross margins and strategic land position provide a solid foundation for future performance.
