Toll Brothers Profit Fueled by Higher Home Prices

A Toll Brother Housing Development Ahead Of Earnings Figures
Patrick T. Fallon/Bloomberg via Getty Images

By Sagarika Jaisinghani

Toll Brothers' quarterly profit more than doubled as a recovering housing market allowed the largest U.S. luxury homebuilder to sell more homes at higher prices, sending its shares up 4 percent.

The company, which sells homes that can cost more than $2 million, has been able to perform better during the past few quarters than most large U.S. homebuilders as its buyers were less affected by a recent rise in mortgage rates.

%VIRTUAL-article-sponsoredlinks%Toll's average selling price rose about 22 percent to $706,000 in the second quarter ended April 30 -- a period well into the spring selling season, which is to homebuilders what the holiday shopping season is to retailers.

Toll (TOL), which mainly builds single-family houses, handed over 1,218 homes in the quarter, up 36 percent from a year earlier.

While the company's sales remain strong, it decided last year to build and rent apartments to cater to the demand for rentals as higher interest rates and slow income growth pushes home ownership out of reach for many Americans.

Permits to build multifamily housing such as apartment blocks rose 19.5 percent in the United States last month, compared with a 0.3 percent rise in permits for single-family homes.

Toll Brothers said Wednesday it had about 1,500 rental units under construction and that it controlled sites for another 3,800.

Lennar (LEN), the second-largest U.S. homebuilder, is the only other builder that is offering apartment rental units.

'Impressive Results'

Toll's net income soared to $65.2 million, or 35 cents a share, in the second quarter from $24.7 million, or 14 cents a share, a year earlier.

Revenue jumped 67 percent to $860.4 million. Orders stayed almost flat at 1,749 homes, compared with a 6 percent fall in the first quarter.

"We are in a leveling period in the early stages of the housing recovery with significant pent-up demand building," Chief Executive Officer Douglas Yearley said in a statement.

UBS analyst David Goldberg called the results impressive but said they were already reflected in the company's valuation.

Toll trades at 17.7 times 12-months forward earnings, and is expensive compared to an average of 14 times for top five U.S. builders D.R. Horton (DHI), Lennar, PulteGroup (PHM), NVR (NVR) and KB Home (KBH), according to Thomson Reuters StarMine.

Toll's shares were up 3.7 percent at $36.95 in early trading. Shares of D.R. Horton, Lennar, PulteGroup and KB Home also rose.

-Additional reporting by Aurindom Mukherjee in Bangalore.

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