Toll Brothers lags U.S. housing recovery on delays
(Reuters) - Toll Brothers Inc (TOL.N), the largest U.S. luxury homebuilder, closed fewer sales than analysts had expected in the first quarter and lagged a housing market recovery by missing Wall Street estimates on earnings, sending its shares down 7 percent.
A 49 percent quarterly rise in orders, however, promises an improvement later in the year as sales are translated into revenue for a company that targets high earners.
"(Toll's) business is primarily very lumpy, just because of the products that they sell," Williams Financial Group analyst David Williams said.
"If you're expecting them to deliver in the first quarter and they get pushed to the second, you can have a dramatic shift in both the top and bottom line."
The U.S. housing market last year began its recovery from a rut that preceded the country's worst recession since the Great Depression. Single-family homes have risen in price every month since February 2012 and home construction added to U.S. economic growth last year for the first time since 2005.
"After seven years of trepidation, buyers are re-entering the housing market," Executive Chairman Robert Toll said in a statement accompanying the company's results.
Homebuilders such as D.R. Horton Inc (DHI.N) and Pultegroup Inc (PHM.N), which target first-time buyers and those upgrading to their second property, have taken advantage of growing demand and raised their prices.
Toll, the only publicly traded luxury homebuilder, has also benefited as some small and medium-sized private builders have been constrained for capital. Before Wednesday, its shares had gained 55 percent in the last 12 months.
But the Horsham, Pennsylvania-based company, which targets customers who typically earn in excess of $100,000 a year, said it had completed 746 homes in the quarter to January 31, compared with 1,088 homes in the fourth quarter.
Toll also said it expected to finish up to 4,300 homes in the year to October 2013, down from the 4,400 it had forecast.
It said the average selling price for homes completed in the quarter fell to $569,000 from $571,000 a year earlier as it closed fewer sales of its more expensive homes.
First-quarter revenue rose 32 percent to $424.6 million, missing analysts' expectations of $502.2 million. The company earned 3 cents per share, below the forecast 10 cents.
Its shares fell to $34.15 on the New York Stock Exchange on Wednesday afternoon.
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Williams said he was not concerned that Toll was losing out on demand, particularly as the company's orders - a key indicator for builders which only earn revenue when they close on a home - jumped to 973 homes in the first quarter.
"We are continuing to gain market share and see little competition from local private builders," Toll Chief Executive Douglas Yearley said in the statement.
In a conference call with analysts, Chief Financial Officer Martin Connor highlighted the company's Touraine project - 22 homes in a boutique building in Manhattan's Upper East Side - as an example of delayed growth.
"Our Touraine project is now estimated to begin deliveries in May rather than April. That's a shift from our second to our third quarter," he said. Residences at the development range in price from about $3 million to $20 million.
Toll also said on Wednesday it would enter the apartment rental business to take advantage of rising rents and low supply. A tight credit market and high unemployment rates have encouraged many consumers to rent, rather than own, homes.
The company said it had assembled sites for about 4,000 rental apartment units and that it expected the new business to start making money from 2015. Company spokesman Frederick Cooper said the apartments would be "upscale".
Data from real-estate research firm Reis Inc show rents have risen for 12 straight quarters and apartment vacancy rates are at their lowest since the third quarter of 2001.
No. 3 U.S. homebuilder Lennar Corp (LEN.N) said last month it would also venture into the apartment rental market.
(Editing by Roshni Menon, Supriya Kurane and Robin Paxton)
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