Luxury Home Market Gets Toll Brothers Bounce

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America's luxury home market got a big boost this past week when Toll Brothers, Inc., the nation's leading builder of luxury homes and numerous high-end golf and country club communities, announced strong quarterly net income and total revenues for the fiscal quarter ending July 31.

Toll Brothers (NYSE: TOL) reported net income of $61.6 million for the quarter, compared to $42.1 million last year, and total revenues of $554.3 million for the quarter, a 41 percent jump from the previous year. The Horsham, Pa.-based company, delivered 963 new homes in the quarter, a 39 percent increase in units.

Meanwhile, the company had net signed contracts of $674.4 million for 1,119 units in the third quarter, a 66 percent increase in dollars and 57 percent jump in units, compared to the previous year. The average price of homes delivered was $576,000, compared to $557,000 in the previous fiscal quarter and $569,000 the previous fiscal year.

"We are enjoying the most sustained demand we've experienced in over five years," Toll Brothers chief executive officer Douglas C. Yearley said. "In the past three quarters, the values of our signed contracts were up 45%, 51% and now 66% compared to FY 2011. Three weeks into our fourth quarter, our non-binding reservation deposits (a precursor to future contracts) are up 59% compared to the same period in FY 2011.

"The pace of our contract growth has far exceeded the national housing data as we are gaining market share. We attribute this to the strength of our brand, our excellent land positions, our proven reputation for reliability and quality, our strong balance sheet and our seasoned management team. Additionally, as the only national home building company focused on the luxury market, we are facing limited competition from the capital-constrained small and mid-sized private builders who are our primary competitors.

According to chief financial officer Martin Connor, Toll Brothers is estimating  the company will deliver between 800 and 1,000 homes in the fiscal fourth quarter at an average price of $570,000-$590,000 per home.

"We believe the housing recovery is being driven by pent-up demand, very low interest rates and attractively priced homes," Yearley added. "Customers who have postponed buying for a number of years are moving into the market. With an industry-wide shortage of inventory in many markets, we are enjoying some pricing power.

"With operations in 20 states and 50 markets, we see the recovery occurring across most of our regions. With over 39,000 lots owned or controlled, a wide range of product lines and $1.7 billion of cash, marketable securities and available credit, we are positioned for growth."

Connor said if Toll Brothers can hit their estimated fiscal fourth-quarter target of 800-1,000 new homes delivered, the company should produce total home sale revenue of $1.71 to $1.84 billion for the current fiscal year and total new home deliveries of 3,000 to 3,200 unit.

This compares to $1.48 billion and 2,611 homes in the previous fiscal year.

"Housing is on the mend," Toll Brothers executive chairman Robert I. Toll said. "We are very encouraged by our results. We do, however, remain cautious in our optimism as we believe consumer confidence remains fragile and subject to the impact of negative economic and political headlines.

"With our strong land position and access to capital, we foresee increased opportunity for profit and growth. As housing demand returns to historic norms, we envision a significant industry-wide supply-demand imbalance due to a shortage of "ready-to-build-on" home sites. In most markets, complex land entitlement processes make it difficult to quickly get land approved and new homes into production. Therefore, after almost every recession, this supply-demand imbalance has led to significant home price increases, as accelerating customer appetite bumps up against very minimal inventory supply. These rising home prices have caused many homeowners to once again feel more comfortable with their net worths, which, in turn, have helped fuel the economy's further expansion."