Toll Profit Drops as Luxury Homebuilder Hurt by Lower Prices

Toll Brothers Inc., the largest U.S. luxury homebuilder, 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, Pa.-based company said in a statement Tuesday. Revenue fell to $1.03 billion from $1.06 billion.

The results were driven by lower-than-expected profit margins and one-time impairments on land, according to Susan Maklari, an analyst with UBS Securities. Rising orders, especially for higher-priced homes in New York and California, are likely to lead to future growth, she said.

"The underperformance was driven by weaker profitability," Maklari, who expected earnings of 52 cents a share, said in a note to clients. "We continue to expect results will improve as we move into fiscal 2016, reflecting increased deliveries from higher-margin geographies and product."

Toll fell 0.5% to $37.88 at 10:33 a.m. in New York, compared with a gain of 0.5% for Bloomberg's index of 22 homebuilders.

The company's average price of homes delivered dropped to $724,000 in the quarter from $732,000 a year earlier. Homebuilding deliveries fell 2% to 1,419 units.

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

Demand for new homes has been growing, fueled by rising employment, an increasing number of households and historically low mortgage rates. New homes sold at an annualized pace of 507,000 in July, up 5.4% from June and the biggest monthly gain this year, the Commerce Department reported 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 mid-Atlantic states to markets in coastal California, Texas and Florida.