The Real Deal New York

Toll Bros. revenue soars, but dip in contracts signals luxury resi slowdown

Total revenue climbed to $7.14B but setbacks included fewer foreign buyers in California
By E.B. Solomont | December 04, 2018 04:30PM

Toll Brothers CEO Doug Yearley and Pierhouse at 90 Furman Street in Brooklyn (Credit: Toll Brothers)

Luxury homebuilder Toll Brothers reeled in a record $7.14 billion in revenue for the year, but a recent drop in new-home orders, particularly in California, put a damper on earnings.

In yet another sign of how soft the high-end market has become, the company said contracts dipped 13 percent to 1,715 during the fourth quarter. That represented $1.5 billion worth of new homes, a 15 percent decline from the prior year. Toll announced earnings Tuesday; its fourth quarter ended Oct. 31.

The impact was most acute in California, which has been hurt by rising prices over the past few years and fewer foreign buyers, CEO Doug Yearley said during an earnings call. He said rising interest rates was a contributor to slowing sales nationwide. Although Toll sold an average of 10.4 homes in California during 2017’s fourth quarter, the number dropped to 5.8 in 2018’s fourth quarter.

“We sold 10-plus homes per quarter [last year] and we knew that wasn’t a number that could be continued,” Yearley said.

The dip in Toll’s overall contract activity came after an otherwise strong year in which the company reported the highest revenue and contract value in its 51-year history. Net income was the highest in a decade, the company said.

Toll ended fiscal 2018 with $1 billion on its balance sheet, and Yearley said it would continue to be “conservative and thoughtful on land buying.” But he said Toll is still bullish on the market’s long-term prospects. “It just doesn’t feel like a slowdown that will have a long duration,” he said during the call, citing strong fundamentals like job growth and the overall economy.

Asked to weigh in on the impact of Amazon’s second headquarters — which will be located in Virginia and Long Island City — he said: “We’re not in Long Island City, but we’re looking.”

For the full year, Toll’s net income rose 40 percent to $748.2 million. Total revenue was $7.14 billion — up 23 percent from fiscal 2017. Although contracts dipped late in the year, Toll said it inked contracts for 8,519 homes in fiscal 2018, a 4 percent increase. The value of those contracts was $7.6 billion, up 11 percent.

Toll’s stock slid 9.2 percent on Tuesday morning to $30.25 per share, before rallying slightly to close at $32.99. The stock price is down around 30 percent from the start of the year, when it was trading just over $48 per share. By comparison, the S&P 500 is down 28 percent, according to Bloomberg.