Luxury home builder Toll Brothers declines most since 2008 after earnings miss

[BOSTON] Toll Brothers Inc, the biggest US luxury-home builder, fell the most in nine years after reporting quarterly earnings that missed analysts' estimates, driven by delayed sales of three expensive New York City condo units.

Net income for the three months through October was US$191.9 million, or US$1.17 a share, compared with US$114.4 million, or 67 US cents, a year earlier, the Horsham, Pennsylvania-based builder said in a statement Tuesday. The average estimate of 14 analysts was US$1.19 a share, according to data compiled by Bloomberg.

The shares dropped 7.3 per cent to US$46.95 at 1:48pm in New York. Earlier, they slid as much as 10 per cent, the biggest intraday decline since early December 2008. Toll was the worst performer in an S&P index of homebuilders, which was down 1.7 per cent.

Toll in recent years has been expanding in expensive markets such as California and New York City, where price growth has been softening. But it also introduced T Select this year, a more affordable brand targeting millennials.

While the company reported revenue for the fiscal fourth quarter of US$2.03 billion, up 9 per cent, it was below the consensus of US$2.09 billion. The three delayed units represented more than US$43 million in revenue that instead will be recorded in the first quarter of 2018. That alone accounted for 3 US cents of earnings per share, chief financial officer Martin Connor said on an earnings conference call. Two of the units are expected to close this week, he said.

"Their delay was the primary reason for our Q4 fiscal year 2017 average delivered price" along with revenue and other metrics "coming in slightly below our expectations," Mr Connor said.

The stock took a hit because investor expectations are high, said Drew Reading, a Bloomberg Intelligence analyst. Toll shares jumped 15 per cent in the past month through yesterday.

"They bid up these stocks so much," Mr Reading said in a phone interview. "With any kind of blip in investor expectations, it's not surprising you'd see a pullback in the near term."

During today's conference call, chief executive officer Douglas Yearley addressed concerns about the sweeping Republican plan to rewrite the US tax code. While coastal markets may be somewhat vulnerable if state and local tax and mortgage interest write-offs are reduced, the company will benefit in other ways, such as having a lower corporate tax rate, he said.

"I'll reiterate what I said before: We don't think our buyers at our price point are driven by the taxes they pay when it comes to purchasing our homes," Mr Yearley said.

US purchases of new single-family homes unexpectedly rose 6.2 per cent in October to the strongest annualised pace in a decade, according to Commerce Department data. LGI Homes Inc, the builder with the strongest performance this year, caters to first-time buyers.

BLOOMBERG