Tuesday, February 25, 2014

Lawler on Toll Brothers: Net Home Orders Down in Latest Quarter; Weather Only Partly to Blame

by Bill McBride on 2/25/2014 05:55:00 PM

From housing economist Tom Lawler:

Toll Brothers, the self-proclaimed “nation’s leading builder of luxury homes,” reported that net home orders in the quarter ended January 31, 2014 totaled 916, down 5.9% from the comparable quarter of 2013. Net home orders for “traditional” homes (that is, excluding its “city-living” segment) totaled 865 last quarter, down 8.1% from a year earlier. The company’s sales cancellation rate, expressed as a % of gross orders, was 7.0% last quarter, up from 6.2% a year ago. Home deliveries last quarter totaled 928, up 24.4% from the comparable quarter of 2013, at an average sales price $694,000, up 22.0% from a year ago. The company’s order backlog at the end of January was 3,667, up 31.2% from last January, at an average order price of $733,000, up 10.2% from a year ago.

Here are a few excerpts from the conference call.

“The freezing, snowy weather of the past two months has impacted our business in the Northeast, Mid-Atlantic and Midwest markets, where about 50% of our selling communities are located. While it is still too early to draw conclusions about the Spring selling season, we remain optimistic based on solid affordability, attractive interest rates, growing pent-up demand and an industry still under-producing compared to both historical norms and current demographics.” “Encouragingly, our average price per home has risen dramatically, representing a combination of price increases and mix shift. Both components have helped boost our gross and operating margin.”
For “traditional” homes, net orders last quarter were down YY in the “North,” up 0.4% in the “Mid-Atlantic” up 9.4% in the “South” (which includes Texas), and off 17.4% in the “West.” The decline in the West was not weather related, but rather reflected potential buyers’ response to Toll’s unusually aggressive price increases in the region, especially California. The average net order price in the West last quarter was $944,000, up 27.9% from a year earlier.

Based on results so far, Toll lowered slightly its wide “guidance” on expected home deliveries for its full fiscal year (ending October 31, 2014) to “between 5,100 and 5,850 homes” from “between 5,100 and 6,100 homes” given in its December 10, 2013 earnings press release. Toll delivered 4,184 homes in the fiscal year ended October 31, 2013.

Toll said that at the end of January it owned or controlled 51,235 lots, up 17.3% from last January and up 29.2% from the end of January 2012.