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Toll Brothers Inc. TOL is set to report third-quarter fiscal 2018 results on Aug 21, before the opening bell. The company delivered a positive earnings surprise of 3.95% in the last reported quarter. In fact, the company surpassed the Zacks Consensus Estimate in three out of the four trailing quarters, with an average positive surprise of 11.7%.
The company mostly serves luxury move-up buyers who already possess a residence and are looking to shift to larger homes. These homebuyers are less sensitive to price changes. Toll Brothers enjoys greater pricing power than other homebuilding companies, resulting in strong earnings, revenues, contracts and backlog growth for the company.
Toll Brothers Inc. Price and EPS Surprise
Toll Brothers Inc. Price and EPS Surprise | Toll Brothers Inc. Quote
Let’s see how things are shaping up for this announcement.
A positive housing market outlook for 2018 is quite compelling, given steady job and wage growth, a recovering economy, moderating home price gains, rising rentals, rapidly increasing household formation and a limited supply of inventory indicating pent-up demand. Notably, the company’s second quarter of fiscal 2018 marked the 15th consecutive quarter of year-over-year growth in contract dollars and units. Toll Brothers has been recording double-digit growth since the last few quarters. The trend is expected to continue in the to-be-reported quarter as well.
Also, home deliveries are expected to increase in the third quarter and continue through the remaining of 2018. The company expects home deliveries between 2,100 units and 2,200 units, at an average price of $830,000-$850,000, higher than 1,899 units in the prior-year quarter. The consensus estimate for home deliveries stands at 2,155 units, implying 14.3% sequential and 13.5% year-over-year growth. Meanwhile, the consensus estimate for average selling price of $844 million indicates an increase of 6.7% from $791 million a year ago but a decrease of 0.5% sequentially.
Toll Brothers expects adjusted gross margin to be approximately 23.4%, implying a decrease of 160 basis points (bps) year over year but a significant 460 bps improvement sequentially.
The company expects SG&A expenses to be approximately 9.6% of the revenues. This compares favorably with the year-ago figure of 10.3% and 10.4% in the last reported quarter.
Overall, for the fiscal third quarter, the consensus estimate for total revenues stands at $1.8 billion, implying 20.7% year-over-year growth. The consensus estimate for earnings is pegged at $1.03 per share, reflecting an increase of 18.4% year over year.
Here is What Our Quantitative Model Predicts:
Our proven model does not conclusively show that Toll Brothers is likely to beat on earnings in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Toll Brothers currently has a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.
Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.