Toll’s Profits Plunge as Home Sales Slow

Lackluster home sales took a bite out of Toll Brothers’ 2019 profits, which dropped 20 percent to $590 million, the homebuilder reported Monday.

The Pennsylvania-based firm reported $7.08 billion in 2019 revenue from home sales, down 1 percent year over year. Net signed contract value dropped 12 percent to $6.71 billion.

But the company said buyer demand rose during the fourth quarter of the year — signaling improvement ahead. At the end of the quarter, the number of contracts was up 18 percent year over year.

During an earnings call Tuesday, CEO Doug Yearley said several markets — including California and New York City — “feel better” than they did a year ago.

“Southern California was pretty flat and it’s running at about the company average for sales,” he said. “New York is not back to where it was four to five years ago, but it’s better.”

Still, Toll’s stock dropped 3.27 percent to $40.04 per share on Tuesday afternoon, after the company said its gross margins would contract in 2020. The fourth-quarter order growth was “below our estimate and we believe investor expectations,” analyst Michal Rehaut of JPMorgan wrote in a research note.

During the call, Yearley reiterated the company’s strategic expansion into new geographic regions and lower price points to meet demand for so-called “affordable luxury” homes.
“We remain committed to our luxury niche,” Yearley said. Still, there are a “growing number of millennials who are older, more affluent and discerning when they buy their first home,” he said, comparing Toll’s affordable luxury homes to BMW’s 3 Series.

During the fourth quarter, Toll reported net income of $202.3 million, down from $311 million a year prior. Toll said home sale revenues dropped 7 percent to $2.29 billion.

Net contract value rose 12 percent to $1.68 billion, but the company’s backlog at the end of the quarter was $5.26 billion, down 5 percent year over year.
For the first quarter, Toll anticipates delivering 1,650 to 1,850 units, with an average price between $800,000 and $820,000 — down from $863,000 a year ago. The drop is “strategic” and reflects Toll’s new focus on affordable luxury, said CFO Marty Connor.

In New York City, Toll has avoided “super luxury,” Yearley said. “We’re focusing on $2,000 per square foot in Manhattan and $1,000 on the Jersey side,” said Yearley. “That is relatively affordable in the New York City market.”