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Toll profit drops as luxury homebuilder hurt by lower prices

🕐 2 min read

Toll Brothers Inc., the largest U.S. luxury homebuilder and with several properties in Southlake, Colleyville and other Texas cities, said fiscal third-quarter earnings fell as lower prices and unit sales caused revenue to decline.

Net income for the three months ended July 31 totaled $66.7 million, or 36 cents a share, compared with $97.7 million, or 53 cents, a year earlier, the Horsham, Pennsylvania-based company said in a statement Tuesday. Revenue fell to $1.03 billion from $1.06 billion.

The results probably reflect a slowdown in orders nine to 12 months ago caused by higher mortgage rates at the time according to Megan McGrath, an MKM Partners analyst, who expected earnings of 45 cents a share. The builder’s costs also increased as it opened new selling communities.

“This quarter doesn’t look like anything to worry about,” McGrath said in a telephone interview Monday, before Toll Brothers reported its earnings. “They’re still delivering off a slow end of 2014.”

The average price of homes delivered dropped to $724,000 in the third quarter from $732,000 a year earlier, Toll Brothers said. Homebuilding deliveries fell 2 percent to 1,419 units.

The picture improves for Toll Brothers going forward as a rising market lifts forward sales and prices. Orders increased to $1.23 billion on 1,479 units from $949.1 million on 1,324 units, Toll said. The average price of net signed contracts was $834,000, the company’s highest ever quarterly figure, according to the statement.

U.S. demand for new homes has been growing, fueled by rising employment, an increasing number of households and historically low mortgage rates. New homes probably sold at an annualized pace of 510,000 in July, the median of 73 estimates compiled by Bloomberg, up from 403,000 a year earlier. The Commerce Department releases its monthly new-home sales report Tuesday.

“This housing recovery appears to be built on a very solid foundation,” Toll Chief Executive Officer Douglas Yearley said in the statement. “The slow but steady acceleration we and the industry are experiencing bodes well for the long-term health of the housing market.”

Toll has diversified into apartment, active adult and high- rise condominium projects while expanding beyond its geographic base in the middle Atlantic states to markets in coastal California, Texas and Florida.

The results were released before the start of U.S. trading. Toll fell 4.7 percent to $38.06 on Monday as a slump in Chinese shares dragged down most global markets. The shares are up 11 percent this year, compared with a 0.8 percent gain for Bloomberg’s index of 22 homebuilders.

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