NEW YORK (Reuters) - Luxury homebuilder Toll Brothers (TOL.N) reported a surprise quarterly profit as it offered fewer buyer incentives and benefited from a tax break.
Toll’s shares were up 2.5 percent after results showed it building on a competitive advantage it first established years ago by making homebuilding in urban areas a part of its core business, said Morningstar analyst Mike Gaiden.
While most of Toll’s peers among publicly traded homebuilders do some of that business, only Toll has made it a focus. A substantial percentage of Toll’s business is in the densely populated corridor running from Washington, D.C., to Boston and including New York City.
“Because of their ability to move into urban areas better than many of their publicly traded peers, Toll is able to salvage profitability,” Gaiden said. “They have flat to growing sales while most of its competitors are posting declines.”
Toll’s quarterly revenue rose 3 percent to $334.1 million, topping analysts’ average estimate of $317.2 million.
The company said this week, deposits were up 9 percent compared with last year.
It even has pricing power in certain locations, Chief Executive Doug Yearley Jr. told industry analysts on a conference call.
And although Yearley still considers it a “buyer’s market,” he is not seeing a need for increased buyer incentives, typically upgrades to the home or cash.
The company reported a profit of $3.4 million, or 2 cents per share, for the fiscal first quarter ended January 31, compared with a year-earlier loss of $40.8 million, or 25 cents per share.
Analysts on average were expecting a loss of 7 cents a share, according to Thomson Reuters I/B/E/S. It was not immediately clear whether that figure compared directly with the reported number.
Toll’s average home price rose 7 percent to $586,000 in the quarter, but the company said it expects a decline to a range of $540,000 and $565,000 for the rest of the year.
The homes in cities and closer-in suburbs that Toll is increasingly building carry lower price tags than larger detached homes further out, although they might be more expensive on a square-foot basis.
In the fifth year of the housing slump, most homebuilders continue to suffer as they compete in a market oversupplied with cut-rate foreclosures and short sales that are a legacy of a housing boom fueled by subprime lending and speculation.
While Toll’s high-end products do not compete directly with foreclosures as some rivals, which focus on the first-time homebuyer, the company is still struggling to close sales with buyers concerned that the new home will lose value.
The S&P/Case-Shiller Home Price Index fell by 3.9 percent in the fourth quarter.
“The market is still tough; the home buyer is still wary,” Yearley Jr. said in a statement.
The latest results include a tax benefit of $20.4 million. Without that, the company lost $17 million, compared with a year-earlier loss of $56.8 million, excluding special items.
Shares of Toll were up 2.2 percent at $21.21 in late trading on the New York Stock Exchange.
Reporting by Helen Chernikoff; additional reporting by Isheeta Sanghi in Bangalore; Editing by Lisa Von Ahn, John Wallace and Bernard Orr