Toll Brothers 3Q profit rises

NEW YORK — Active high-end buyers and the inklings of a housing market recovery proved to be a profitable mix for Toll Brothers in its third quarter, as it delivered more homes at higher prices. Its net income climbed 46 percent and the company raised the low end of its 2012 home deliveries forecast.

The trove of good news sent Toll Brothers’ stock to its highest point in more than five years Wednesday.

There is a broader perception of a bounce back in the housing industry, at least compared to the wasteland of the past several years. Toll Brothers was already doing a little better because it caters to the luxury sector, which withstood the economic downturn better than others. Its target market includes households that typically make more than $100,000 a year, can afford to make a down payment of as much as 30 percent, have great credit record and an unemployment rate about half that of the general population.

Yet even for Toll Brothers, it appears the trend is accelerating.

“We are enjoying the most sustained demand we’ve experienced in over five years,” CEO Douglas Yearley said.

The National Association of Realtors reported on Wednesday that Americans bought more homes in July than in June and prices rose. Sales of previously occupied homes rose to 4.47 million in July, a 2.3 percent increase from the previous month. It was the first increase in three months. Still, the annual sales pace is well below the 5.5 million sales that economists would consider healthy.

Future indicators, however, are good.

The Commerce Department reported last week that applications for building permits rose to their highest level since August 2008. That could be considered a signal that construction companies are growing more confident about the housing landscape. Homebuilder confidence grew this month to a five-year high, according to the National Association of Home Builders/Wells Fargo sentiment index. The index rose to 37 from 35 in July. And many builders reported seeing their best sales since February 2007.

That too, must be put into context. Any reading below 50 indicates negative sentiment about the housing market. The index hasn’t been in positive territory since April 2006, the peak of the housing boom.

For the three months ended July 31, Toll Brothers Inc. earned $61.6 million, or 36 cents per share. That compares with $42.1 million, or 25 cents per share, a year ago.

Aside from its high-end buyers and signs of a housing market recovery, the Horsham, Pa. company’s results benefited from lower write-downs during the period. The current quarter included $3.1 million in inventory write-downs. It recorded write-downs more than five times that large last year.

Toll Brothers’ performance handily beat the 18 cents per share that analysts polled by FactSet expected.

The homebuilder’s stock jumped $1.05, or 3.3 percent, to $32.86 in morning trading. Earlier in the session the stock rose to $33.68, the highest it’s been since early 2007.

Revenue increased to $554.3 million from $394.3 million, up 41 percent. That topped Wall Street’s estimate of $515.2 million.

“We believe Toll Brothers’ results suggest improvement in operating profitability going forward, while the company’s balance sheet continues to position it well to invest,” said Jade Rahmani of Keefe, Bruyette & Woods.

Toll Brothers’ home deliveries climbed 39 percent to 963 units during the quarter, with the average price of those homes rising to $576,000 from $569,000.

Backlog increased 44 percent to 2,559 homes, while net signed contracts climbed 57 percent to 1,119 units.

Yearley said the housing recovery is being driven by low interest rates, attractive home prices and pent-up demand.

Toll Brothers anticipates fourth-quarter home deliveries of 800 to 1,000 units at an average price of $570,000 to $590,000 per home. If the company accomplishes that goal, it would have 2012 home sale revenue of $1.71 billion to $1.84 billion and total home deliveries of 3,000 to 3,200 units. It previously predicted home deliveries of 2,700 to 3,200 units.

In 2011 Toll Brothers had $1.48 billion in home sale revenue and 2,611 total home deliveries.

Toll Brothers has operations in Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas, Virginia, and Washington.