August 21, 2018 / 11:34 AM / a month ago

Toll Brothers profit beats on robust demand for luxury homes

(Reuters) - Toll Brothers Inc (TOL.N) topped estimates for quarterly profit and revenue on strong demand for its luxury homes, sending its shares up 12 percent in early trading and pushing other homebuilder stocks higher.

The results underscore strength in the U.S. homebuilding sector as robust demand, fueled by a stronger economy and low unemployment rates, cushions the impact of higher construction costs, labor shortages and rising interest rates.

“We believe (Toll) could warrant a premium to the sector given its strong brand and unique, luxury focus,” Keefe, Bruyette & Woods analyst Jade Rahmani said in a note, adding that the company’s strong third-quarter results could lead to a “relief rally” in the shares.

Shares of KB Home (KBH.N), Lennar Corp (LEN.N), D.R. Horton (DHI.N) and PulteGroup (PHM.N) gained between 3 percent and 4 percent.

Toll said it now expects full-year revenue of between $6.76 billion and $7.22 billion, compared with an earlier forecast of between $6.64 billion and $7.31 billion.

“We believe there is room for continued growth in the new home market in the coming years,” Executive Chairman Robert Toll said, adding that the company is seeing new demand from millennials starting to buy homes.

A single family home is shown under construction by Toll Brothers Inc, the largest U.S. luxury homebuilder, in Carlsbad, California, United States May 23, 2016. REUTERS/Mike Blake/File Photo

During the quarter, orders - an indicator of future revenue for homebuilders - fell in California, where Toll typically sells higher priced homes. While the California market is not as hot as it was a year ago, it is still one of Toll’s stronger markets, the company said.

Overall, orders rose 7.1 percent, and Toll sold 2,246 homes in the quarter ended July 31, an 18.3 rise year-over-year.

The company narrowed its forecast for the number of homes it expects to sell in fiscal 2018 to between 8,100 and 8,400 units, from between 8,000 and 8,500 units.

Toll also raised the lower end of its full-year average price forecast to $835,000 from $830,000, keeping the higher end at $860,000.

The average price of a Toll home rose 7.6 percent to $851,900 in the third quarter, its highest growth in four quarters.

Net income rose 30 percent to $193.3 million, or $1.26 per share, while revenue jumped 27.3 percent to $1.91 billion.

Analysts on average had expected earnings of $1.03 per share and revenue of $1.81 billion, according to Thomson Reuters I/B/E/S.

Reporting by Sanjana Shivdas in Bengaluru; Editing by Sai Sachin Ravikumar and Saumyadeb Chakrabarty

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