Toll Brothers Reports FY 2022 3rd Quarter Results

Toll Brothers

FORT WASHINGTON, PA — Toll Brothers, Inc. (NYSE:TOL) this week announced results for its third quarter ended July 31, 2022.

FY 2022’s Third Quarter Financial Highlights (Compared to FY 2021‘s Third Quarter):

  • Net income and earnings per share were $273.5 million and $2.35 per share diluted, compared to net income of $234.9 million and $1.87 per share diluted in FY 2021’s third quarter.
  • Pre-tax income was $366.0 million, compared to $303.4 million in FY 2021’s third quarter.
  • Home sales revenues were $2.3 billion, up 1% compared to FY 2021’s third quarter; delivered homes were 2,414, down 7%.
  • Net signed contract value was $1.7 billion, down 44% compared to FY 2021’s third quarter; contracted homes were 1,266, down 60%.
  • Backlog value was $11.2 billion at third quarter end, up 19% compared to FY 2021’s third quarter; homes in backlog were 10,725, up 1%.
  • Home sales gross margin was 26.0%, compared to FY 2021’s third quarter home sales gross margin of 22.7%.
  • Adjusted home sales gross margin, which excludes interest and inventory write-downs, was 27.9%, compared to FY 2021’s third quarter adjusted home sales gross margin of 25.6%.
  • SG&A, as a percentage of home sales revenues, was 10.3%, compared to 10.5% in FY 2021’s third quarter.
  • Income from operations was $361.7 million.
  • Other income, income from unconsolidated entities, and gross margin from land sales and other was $13.2 million.
  • The Company repurchased approximately 2.0 million shares at an average price of $44.93 per share for a total purchase price of approximately $91.6 million.

Douglas C. Yearley, Jr., chairman and chief executive officer, stated: “Our third quarter earnings per share of $2.35 grew by 26% from one year ago driven by a 230-basis point improvement in adjusted gross margin to 27.9%. While we achieved record third quarter revenue and earnings, and exceeded our gross margin forecast, deliveries were below our guidance due to unforeseen delays with municipal inspectors, continued labor shortages and supply chain disruptions, as well as a softer demand environment.

“Due to these challenges, we have lowered our full year deliveries guidance. We now expect to deliver between 10,000 and 10,300 homes in FY 2022 at an average price of approximately $920,000. Based on the strong pricing embedded in our $11.2 billion backlog, we expect continued gross margin expansion in our fourth quarter to 29.2%. We also reaffirm our full year adjusted gross margin guidance of 27.5% for FY 2022.

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“As our third quarter progressed, we saw a significant decline in demand as the combined impact of sharply rising mortgage rates, higher home prices, stock market volatility and macroeconomic uncertainty caused many prospective buyers to step to the sidelines. However, in more recent weeks, we have seen signs of increased demand as sentiment is improving and buyers are returning to the market. Average weekly deposits in the first three weeks of August were up 25% compared to July.

“We continue to believe the long-term fundamentals underpinning the housing market remain firmly in place. These include favorable demographics, with more millennials entering their prime homebuying years and baby boomers experiencing new lifestyles, the structural shortage of homes in America resulting from over a decade of undersupply, migration trends, and the greater appreciation for home that Americans have embraced in recent years.”

Fourth Quarter and FY 2022 Financial Guidance:
Fourth Quarter Full Fiscal Year 2022
Deliveries 3,250 – 3,550 units 10,000 – 10,300 units
Average Delivered Price per Home $935,000 – $955,000 $915,000 – $925,000
Adjusted Home Sales Gross Margin 29.2% 27.5%
SG&A, as a Percentage of Home Sales Revenues 8.7% 10.5%
Period-End Community Count 350 350
Other Income, Income from Unconsolidated Entities, and Gross Margin from Land Sales and Other $0 $60 million
Tax Rate 24.8% 25.0%
Financial Highlights for the three months ended July 31, 2022 and 2021 (unaudited):
2022 2021
Net Income $273.5 million, or $2.35 per share diluted $234.9 million, or $1.87 per share diluted
Pre-Tax Income $366.0 million $303.4 million
Pre-Tax Inventory Impairments $6.2 million $13.2 million
Home Sales Revenues $2.26 billion and 2,414 units $2.23 billion and 2,597 units
Net Signed Contracts $1.66 billion and 1,266 units $2.98 billion and 3,154 units
Net Signed Contracts per Community 3.9 units 10.2 units
Quarter-End Backlog $11.19 billion and 10,725 units $9.44 billion and 10,661 units
Average Price per Home in Backlog $1,042,900 $885,200
Home Sales Gross Margin 26.0% 22.7%
Adjusted Home Sales Gross Margin 27.9% 25.6%
Interest Included in Home Sales Cost of Revenues, as a percentage of Home Sales Revenues 1.7% 2.2%
SG&A, as a percentage of Home Sales Revenues 10.3% 10.5%
Income from Operations $361.7 million, or 14.5% of total revenues $276.7 million, or 12.3% of total revenues
Other Income, Income from Unconsolidated Entities, and Gross Margin from Land Sales and Other $13.2 million $29.1 million
Quarterly Cancellations as a Percentage of Signed Contracts in Quarter 13.0% 3.1%
Quarterly Cancellations as a Percentage of Beginning-Quarter Backlog 1.6% 1.0%
Financial Highlights for nine months ended July 31, 2022 and 2021 (unaudited)
2022 2021
Net Income $646.0 million, or $5.41 per share diluted $459.3 million, or $3.63 per share diluted
Pre-Tax Income $862.6 million $600.6 million
Pre-Tax Inventory Impairments $10.7 million $16.0 million
Home Sales Revenues $6.13 billion and 6,750 units $5.48 billion and 6,645 units
Net Signed Contracts $7.75 billion and 7,069 units $8.54 billion and 9,515 units
Home Sales Gross Margin 24.6% 21.9%
Adjusted Home Sales Gross Margin 26.6% 24.5%
SG&A, as a percentage of Home Sales Revenues 11.5% 12.1%
Income from Operations $818.4 million, or 12.5% of total revenues $580.2 million, or 10.1% of total revenues
Other Income, Income from Unconsolidated Entities, and Land Sales Gross Profit $55.2 million $100.7 million
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[/su_table] Additional Information:

  • The Company ended its FY 2022 third quarter with approximately $316.5 million in cash and cash equivalents, compared to $1.6 billion at FYE 2021 and $535.0 million at FY 2022’s second quarter end. At FY 2022 third quarter end, the Company also had $1.8 billion available under its $1.9 billion bank revolving credit facility, substantially all of which is scheduled to mature in November 2026.
  • On July 22, 2022, the Company paid its quarterly dividend of $0.20 per share to shareholders of record at the close of business on July 8, 2022.
  • Stockholders’ Equity at FY 2022 third quarter end was $5.5 billion, compared to $5.3 billion at FYE 2021.
  • FY 2022’s third quarter-end book value per share was $48.74 per share, compared to $44.08 at FYE 2021.
  • The Company ended its FY 2022 third quarter with a debt-to-capital ratio of 37.5%, compared to 38.1% at FY 2022’s second quarter end and 40.2% at FYE 2021. The Company ended FY 2022’s third quarter with a net debt-to-capital ratio(1) of 34.3%, compared to 33.1% at FY 2022’s second quarter end, and 25.1% at FYE 2021.
  • The Company ended FY 2022’s third quarter with approximately 82,100 lots owned and optioned, compared to 85,800 one quarter earlier, and 79,500 one year earlier. Approximately 49% or 39,900, of these lots were owned, of which approximately 18,700 lots, including those in backlog, were substantially improved.
  • In the third quarter of FY 2022, the Company spent approximately $243.5 million on land to purchase approximately 1,932 lots.
  • The Company ended FY 2022’s third quarter with 332 selling communities, compared to 328 at FY 2022’s second quarter end and 314 at FY 2021’s third quarter end.
  • The Company repurchased approximately 2.0 million shares of its common stock during the quarter at an average price of $44.93 per share for an aggregate purchase price of approximately $91.6 million.
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(1)   See “Reconciliation of Non-GAAP Measures” below for more information on the calculation of the Company’s net debt-to-capital ratio.

RECONCILIATION OF NON-GAAP MEASURES

The Company’s announcement contained, and Company management’s discussion of the results presented, including, information about its adjusted home sales gross margin and the Company’s net debt-to-capital ratio.

These two measures are non-GAAP financial measures which are not calculated in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures should not be considered a substitute for, or superior to, the comparable GAAP financial measures, and may be different from non-GAAP measures used by other companies in the home building business.

The Company’s management reportedly considers these non-GAAP financial measures as it makes operating and strategic decisions and evaluates its performance, including against other home builders that may use similar non-GAAP financial measures. The Company’s management believes these non-GAAP financial measures are useful to investors in understanding its operations and leverage and may be helpful in comparing the Company to other home builders to the extent they provide similar information.

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