Coverage: Toll Brothers stock surges on luxury home sales

Toll Brothers Inc.’s quarterly profit rose 30 percent, the U.S. luxury home builder said on Tuesday, as stronger housing demand helped it sell more homes at higher prices.

Meenal Vamburkar of The Real Deal had the news:

“We have buyers that will only shop new,” CEO Douglas Yearly said on the company’s earnings call. “We are positioned really well and have a huge advantage over the used market.”

For the full fiscal year, Toll Brothers expects deliveries between 8,100 and 8,400 units with an average price between $835,000 and $860,000. That’s down from the previous expectation of between 8,000 and 8,500 units. The resulting revenues — between $6.76 billion and $7.22 billion — would be the highest annual revenues in the company’s history, the statement said.

The value of contracts in the West, South and Mid-Atlantic regions, and the City Living division, were all up at least double digits, the company said. The North region was essentially flat. Net contract value was $2.03 billion, up 12 percent.

The City Living division, which primarily focuses on the New York City metro area, sold 29 units for a total of $50.6 million during the quarter ($1.75 million a unit). That’s down from $98.7 million across 78 units a year earlier. However, the value of contracts signed increased to $80.7 million from $40.4 million.

“We believe (Toll) could warrant a premium to the sector given its strong brand and unique, luxury focus,” Keefe, Bruyette & Woods analyst Jade Rahmani said in a note, adding that the company’s strong third-quarter results could lead to a “relief rally” in the shares.

Shares of KB Home, Lennar Corp, D.R. Horton and PulteGroup gained between 3 percent and 4 percent.

Toll said it now expects full-year revenue of between $6.76 billion and $7.22 billion, compared with an earlier forecast of between $6.64 billion and $7.31 billion.

“We believe there is room for continued growth in the new home market in the coming years,” Executive Chairman Robert Toll said, adding that the company is seeing new demand from millennials starting to buy homes.

Steve Goldstein of MarketWatch.com reported that Toll’s stock is still down for the year despite Tuesday’s gain:

The company also reported 2,316 orders, above the 2,291 consensus. It is forecasting fiscal year revenue between $6.76 billion and $7.22 billion, compared to the FactSet estimate of $7.02 billion.

For the year, Toll Brothers expects its average price to be between $835,000 and $860,000; the typical new home in the U.S. sold for $302,100 in June, the Commerce Department reports.

On a conference call, executives pointed out the company will benefit next year from lower lumber prices, but that those cost decreases may be paired with higher labor expenses.

Even with Tuesday’s stellar gains, the stock is still down nearly 18 percent this year. The S&P 500 is up about 7 percent in the same period.