A sign is displayed at Toll Brothers Inc. headquarters in Horsham, Penn., on Aug. 22, 2006. William Thomas Cain/Getty Images
Toll Brothers has reported what it called a solid performance in its fiscal third quarter, as wealthy customers continued to buy homes despite higher selling prices.
For the three months ending in July, the Pennsylvania-based luxury homebuilders on Tuesday reported revenue of about $2.66 billion, down from $2.95 billion in the same quarter a year earlier.
Net income for the quarter stood at $280.1 million, compared with $369.6 million a year ago.
Over the quarter, the company delivered 2,662 homes, down from 2,959 a year earlier, but the average delivered price rose to $996,400 from $973,600.
Toll Brothers highlighted the financial strength of its customer base. During an earnings call Wednesday, CEO Karl Mistry said about 25 percent of buyers paid entirely in cash. Among customers who financed their purchases, the average loan-to-value ratio was about 69 percent.
“Toll Brothers delivered solid third quarter results in a challenging market,” Mistry said in a statement.
“These results position us for another year of healthy profitability and returns, and we are reaffirming all of our full-year guidance metrics.”
For the full year, Toll reaffirmed its forecast for deliveries of between 10,500 and 10,600 homes at an average price of $995,000 to $1 million. It also maintained its expectation for a full-year adjusted home sales gross margin of 26.1 percent.
The broader housing market remains sluggish as elevated mortgage rates continue to weigh on affordability and buyer confidence, executives said on the call.
Still, Toll’s margin outlook and return on equity leave the company in “a really good position” to benefit when buying conditions improve, according to Douglas Yearley, the company’s executive chairman and former CEO.
“It is a tough market and we’re now four years in,” Yearley said during Wednesday’s call, noting that buyer incentives are still high and that homes are still selling at a pace below levels seen in the past.
Yet Yearley said he believes the difficult housing cycle is approaching its end and that “time is on our side.”
“That light at the end of the tunnel—I am sure is not a train coming at us anymore, but it is light,” he told investors. “I just can’t tell you when we’re going to get there.”
He added that when incentives return closer to historical norms and sales rates recover, Toll’s margins and returns should improve.
For homebuilders like Toll, some encouraging news came Wednesday when the U.S. Treasury said it would at least double the level of buybacks of longer-dated government bonds in the next few months.
The yield on the 10-year Treasury note, a key benchmark influencing mortgage rates, fell from its previous close at 4.68 percent to as low as 4.63 percent following the announcement.
The 10-year Treasury yield is closely watched because fixed mortgage rates tend to move in the same general direction. When Treasury yields rise, mortgage rates typically increase; when yields fall, borrowing costs for homebuyers often decline.
