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.

9 Numbers That'll Tell You How the Economy's Really Doing
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Toll Brothers Profit Fueled by Higher Home Prices
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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