FORT WASHINGTON, PA — Toll Brothers, Inc. (NYSE: TOL) this week announced results for its fourth quarter ended October 31, 2022.
FY 2022’s Fourth Quarter Financial Highlights (Compared to FY 2021‘s Fourth Quarter):
- Net income and earnings per share were $640.5 million and $5.63 per share diluted, compared to net income of $374.3 million and $3.02 per share diluted in FY 2021’s fourth quarter. As previously disclosed, net income in the fourth quarter includes a $138.4 million net pre-tax benefit primarily related to the settlement of the Company’s claims associated with a natural gas leak that occurred in Southern California in late 2015.
- Pre-tax income was $841.1 million, compared to $499.7 million in FY 2021’s fourth quarter.
- Home sales revenues were $3.6 billion, up 21% compared to FY 2021’s fourth quarter; delivered homes were 3,765, up 13%.
- Net signed contract value was $1.3 billion, down 56% compared to FY 2021’s fourth quarter; contracted homes were 1,186, down 60%.
- Backlog value was $8.9 billion at fourth quarter end, down 7% compared to FY 2021’s fourth quarter; homes in backlog were 8,098, down 21%.
- Home sales gross margin was 26.9%, compared to FY 2021’s fourth quarter home sales gross margin of 23.5%.
- Adjusted home sales gross margin, which excludes interest and inventory write-downs, was 29.0%, compared to FY 2021’s fourth quarter adjusted home sales gross margin of 25.9%.
- SG&A, as a percentage of home sales revenues, was 7.7%, compared to 8.8% in FY 2021’s fourth quarter.
- Income from operations was $690.2 million.
- Other income, income from unconsolidated entities, and gross margin from land sales and other was $152.5 million, which includes an approximate $141.2 million benefit related to the settlement described above.
- The Company repurchased approximately 3.7 million shares at an average price of $42.45 per share for a total purchase price of approximately $158.9 million.
Full FY 2022 Financial Highlights (Compared to Full FY 2021):
- Net income was $1.29 billion, and earnings per share were $10.90 diluted, compared to net income of $833.6 million and $6.63 per share diluted in FY 2021.
- Pre-tax income was $1.70 billion, compared to $1.10 billion in FY 2021.
- Home sales revenues were $9.71 billion, up 15% compared to FY 2021; delivered homes were 10,515, up 5%.
- Net signed contract value was $9.07 billion, down 21% compared to FY 2021; contracted homes were 8,255,down 34%.
- Home sales gross margin was 25.5%, compared to FY 2021’s home sales gross margin of 22.5%.
- Adjusted home sales gross margin, which excludes interest and inventory write-downs, was 27.5%, compared to FY 2021’s adjusted home sales gross margin of 25.0%.
- SG&A, as a percentage of home sales revenues, was 10.1%, compared to 10.9% in FY 2021.
- Income from operations was $1.51 billion.
- Other income, income from unconsolidated entities, and gross margin from land sales and other was $207.7 million.
- The Company repurchased approximately 11.0 million shares at an average price of $49.34 per share for a total purchase price of approximately $542.7 million.
Douglas C. Yearley, Jr., chairman and chief executive officer, stated: “Despite the many challenges facing our industry over the past year, we delivered record results in FY 2022, closing the year with our strongest quarterly earnings ever. In our fourth quarter, we delivered 3,765 homes, generated home sales revenues of $3.6 billion and increased earnings by 86% to $5.63 per share diluted as compared to Q4 2021. Driven by the strong pricing in our backlog, our fourth quarter adjusted gross margin was 29.0%, a 310-basis point increase compared to Q4 2021, and our fourth quarter SG&A expense, as a percentage of home sales revenues, improved by 110 basis points over Q4 2021 to 7.7%. For the year, we delivered over 10,500 homes and grew home sales revenues by 15.2%, posted an adjusted gross margin of 27.5%, decreased SG&A margin by 80 basis points and improved our return on beginning equity by 720 basis points to 24.3%. We earned a record $10.90 per share diluted and increased our book value to $54.79 per share. I am pleased with these results and proud of the extraordinary efforts of the entire Toll Brothers team.
“While FY 2022 was a year of records for our Company, the dramatic increase in mortgage rates since March presents a challenging market as we enter FY 2023. Many homebuyers are on the sidelines, waiting for clarity on the direction of mortgage rates and the overall economy. Our net signed contracts were down 60% in units and 56% in dollars in the fourth quarter, with no discernible change nearly halfway through our first quarter. Despite the softer market, FY 2023 is positioned to be another solid, high-margin year for us because of our strong backlog of 8,098 homes valued at $8.9 billion at fiscal year end. We are projecting an adjusted gross margin of 27.0% and earnings per share of $8.00 to $9.00 in FY 2023. This would increase our book value per share to above $60 at fiscal year-end 2023.
“As a primarily build-to-order home builder, we are strategically balancing the delivery of our large, high-margin backlog in FY 2023 with the generation of new sales for future deliveries. In this uncertain demand environment, our pricing strategy reflects, for each of our communities, an evaluation of local market dynamics, including elasticity of demand, the size of our backlog and the depth and quality of our land holdings in that market. We intend to continue making appropriate price adjustments as FY 2023 progresses. We also plan to grow our community count, replenish our supply of spec inventory in certain markets, and take advantage of shorter cycle times and lower building costs as trades have begun to show signs of increased capacity.
“Importantly, we have sufficient land under control to increase community count by 10% in FY 2023. We continue to assess all pending and future land transactions using rigorous underwriting standards based on current market conditions. Our balance sheet is solid, with over $3.0 billion of liquidity at fiscal year end and a net debt-to-capital ratio of 23.4%. In addition, we expect to generate significant cash flow from operations in FY 2023. This should enable us to continue reducing debt and returning cash to stockholders throughout the year.
“We believe the long-term prospects for the housing market remain positive despite recent weakness. Demographic and migration trends continue in our favor. In addition, there continues to be a substantial shortage of homes in America as housing starts have not kept up with population growth for at least the past 15 years. We believe these fundamental drivers will support the housing market well into the future.”<
|First Quarter and FY 2023 Financial Guidance:|
|First Quarter||Full Fiscal Year 2023|
|Deliveries||1,750 – 1,850 units||8,000 – 9,000 units|
|Average Delivered Price per Home||$950,000 – $970,000||$965,000 – $985,000|
|Adjusted Home Sales Gross Margin||27.0||%||27.0||%|
|SG&A, as a Percentage of Home Sales Revenues||13.5||%||11.3||%|
|Period-End Community Count||340||385|
|Other Income, Income from Unconsolidated Entities, and Gross Margin from Land Sales and Other||$10 million||$125 million|
|Financial Highlights for the three months ended October 31, 2022 and 2021 (unaudited):|
|Net Income||$640.5 million, or $5.63 per share diluted||$374.3 million, or $3.02 per share diluted|
|Pre-Tax Income||$841.1 million||$499.7 million|
|Pre-Tax Inventory Impairments||$22.1 million||$10.5 million|
|Home Sales Revenues||$3.58 billion and 3,765 units||$2.95 billion and 3,341 units|
|Net Signed Contracts||$1.32 billion and 1,186 units||$3.00 billion and 2,957 units|
|Net Signed Contracts per Community||3.5 units||8.9 units|
|Quarter-End Backlog||$8.87 billion and 8,098 units||$9.50 billion and 10,302 units|
|Average Price per Home in Backlog||$1,095,800||$922,100|
|Home Sales Gross Margin||26.9||%||23.5||%|
|Adjusted Home Sales Gross Margin||29.0||%||25.9||%|
|Interest Included in Home Sales Cost of Revenues, as a percentage of Home Sales Revenues||1.5||%||2.0||%|
|SG&A, as a percentage of Home Sales Revenues||7.7||%||8.8||%|
|Income from Operations||$690.2 million, or 18.6% of total revenues||$440.7 million, or 14.5% of total revenues|
|Other Income, Income from Unconsolidated Entities, and Gross Margin from Land Sales and Other||$152.5 million||$63.5 million|
|Quarterly Cancellations as a Percentage of Beginning-Quarter Backlog||2.9||%||1.3||%|
|Quarterly Cancellations as a Percentage of Signed Contracts in Quarter||20.8||%||4.6||%|
|Financial Highlights for the fiscal years ended October 31, 2022 and 2021 (unaudited)|
|Net Income||$1.29 billion, or $10.90 per share diluted||$833.6 million, or $6.63 per share diluted|
|Pre-Tax Income||$1.70 billion||$1.10 billion|
|Pre-Tax Inventory Impairments||$32.7 million||$26.5 million|
|Home Sales Revenues||$9.71 billion and 10,515 units||$8.43 billion and 9,986 units|
|Net Signed Contracts||$9.07 billion and 8,255 units||$11.54 billion and 12,472 units|
|Home Sales Gross Margin||25.5||%||22.5||%|
|Adjusted Home Sales Gross Margin||27.5||%||25.0||%|
|SG&A, as a percentage of Home Sales Revenues||10.1||%||10.9||%|
|Income from Operations||$1.51 billion, or 14.7% of total revenues||$1.02 billion, or 11.6% of total revenues|
|Other Income, Income from Unconsolidated Entities, and Land Sales Gross Profit||$207.7 million||$164.3 million|
- The Company ended its FY 2022 fourth quarter with approximately $1.3 billion in cash and cash equivalents, compared to $1.6 billion at FYE 2021 and $316.5 million at FY 2022’s third quarter end. At FY 2022 fourth 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 October 21, 2022, the Company paid its quarterly dividend of $0.20 per share to shareholders of record at the close of business on October 7, 2022.
- Stockholders’ Equity at FY 2022 fourth quarter end was $6.0 billion, compared to $5.3 billion at FYE 2021.
- FY 2022’s fourth quarter-end book value per share was $54.79 per share, compared to $44.08 at FYE 2021.
- The Company ended its FY 2022 fourth quarter with a debt-to-capital ratio of 35.7%, compared to 37.5% at FY 2022’s third quarter end and 40.2% at FYE 2021. The Company ended FY 2022’s fourth quarter with a net debt-to-capital ratio(1) of 23.4%, compared to 34.3% at FY 2022’s third quarter end, and 25.1% at FYE 2021.
- The Company ended FY 2022’s fourth quarter with approximately 76,000 lots owned and optioned, compared to 82,100 one quarter earlier, and 80,900 one year earlier. Approximately 50% or 37,700, of these lots were owned, of which approximately 17,400 lots, including those in backlog, were substantially improved.
- In the fourth quarter of FY 2022, the Company spent approximately $138.2 million on land to purchase approximately 1,449 lots.
- The Company ended FY 2022’s fourth quarter with 348 selling communities, compared to 332 at FY 2022’s third quarter end and 340 at FY 2021’s fourth quarter end.
- The Company repurchased approximately 3.7 million shares of its common stock during the quarter at an average price of $42.45 per share for an aggregate purchase price of approximately $158.9 million.
- On August 25, 2022, the Company entered into a $192.5 million settlement agreement with Southern California Gas Company to resolve the Company’s claims associated with a natural gas leak that occurred from October 2015 through February 2016 at the Aliso Canyon underground storage facility located near certain of its communities in Southern California. As a result, net of legal fees and expenses, the Company recognized a pre-tax gain in the fourth quarter of $148.4 million, of which $141.2 million was recorded in Other income – net in the Company’s Consolidated Statement of Operations. The remainder was recorded as an offset to previously incurred expenses. Coincident with this settlement, the Company seeded a new Toll Brothers charitable foundation with $10.0 million, resulting in a $138.4 million net pre-tax benefit to earnings in the fourth quarter.
(1) See “Reconciliation of Non-GAAP Measures” below for more information on the calculation of the Company’s net debt-to-capital ratio.
For more information visit TollBrothers.com.
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