Despite weather, Toll Bros. sees strong first quarter

A Toll Bros. home in Colo. Shortage of inventory allowed the luxury builder to raise prices.
A Toll Bros. home in Colo. Shortage of inventory allowed the luxury builder to raise prices. (RICK WILKING / Reuters)
Posted: February 27, 2014

Buoyed by higher sales and prices, Toll Bros. Inc.'s first-quarter profit soared from $4.4 million a year ago to $45.6 million, the Horsham-based luxury home-builder said Tuesday.

Per-share earnings rose to 25 cents this quarter from three cents in its first period of 2013, Toll reported.

The tenfold increase in net income, for the quarter ended Jan. 31, came even as sales slowed in the latter part of 2013 after nine months of solid sales.

Bad weather in the last two months, which hit areas in which about half of Toll's communities were located, also has affected the home-builder.

"We delivered more homes at higher prices this first quarter than one year ago," said Douglas C. Yearley Jr., Toll's chief executive officer.

"This higher delivery volume, coupled with price increases from late 2012 and early 2013," Yearley said, "drove our first-quarter growth in revenues, earnings, and margins."

In a December interview, Yearley said Toll felt "good about 2014 and beyond," since the builder was "bigger, stronger, and more diversified, and primed for continuation of the recovery."

That theme was reiterated Tuesday, even while acknowledging the effects of an unusual winter.

"While it is too early to draw conclusions about the spring selling season," Yearley said, "we remain optimistic based on solid affordability, attractive interest rates, pent-up demand, and an industry still under-producing compared to historical norms and current demographics."

Economists put normal annual home production at 1.5 million units. In January, mostly attributable to the weather, the U.S. Census Bureau put housing starts at an 880,000 annualized rate.

That said, economist Patrick Newport, of IHS Global Insight in Lexington, Mass., predicted that home production would reach one million in 2014.

Fort Washington-based builder John Westrum said in an interview Monday that, owing to continued difficulties, most small and midsize home-building firms were having trouble obtaining construction loans and that the 1.5 million number was still far away.

The shortage of inventory has allowed most builders, including Toll, to raise prices, helping boost net income.

Revenue of $643.7 million and home-building deliveries of 928 units rose 52 percent in dollars and 24 percent in units year over year for the quarter ended Jan. 31.

The average price of homes delivered was $694,000, compared with $569,000 in fiscal 2013's first quarter.

Backlog of $2.69 billion and 3,667 units rose 45 percent in dollars and 31 percent in units year over year, Toll reported.

An additional $105.3 million and 126 units were added to backlog upon completion Feb. 4 of Toll's acquisition of Shapell Homes of California.

Toll's chief financial officer, Martin P. Connor, said first-quarter sales "have given us a jump-start" on the builder's plan to accelerate the return of cash used in the $1.6 billion Shapell purchase.

Toll financed the purchase with a combination of equity and debt. It plans to sell about 25 percent of the 5,100 lots it bought from Shapell to generate more cash.

The company has about 51,000 building lots owned and optioned.

"Our company has certainly come a long way since 1967, when we began with two homes," said Toll executive chairman Robert I. Toll.

Toll also said he expected the weather to result in "some delays and some additional, but not major, costs, so it should not result in lost sales or deliveries."

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