Toll Brothers Inc., the biggest U.S. luxury homebuilder, rose the most in three years after reporting earnings and sales that beat estimates, a sign that buyer demand remains robust for high-end properties.
Net income for the three months ended July 31 was $105.5 million, or 61 cents a share, compared with $66.7 million, or 36 cents, a year earlier, the Horsham, Pa.-based builder said in a statement on Tuesday.
"We are in a strong and solid, improving real estate market," Chief Executive Officer Douglas Yearley Jr. said in an interview after earnings were announced.
Yearley said that the market lacks the unsettling signs that helped cause housing to crash last decade, with mortgage standards now strong, inventory levels under control and buyers overwhelmingly seeking homes to live in rather than as investments. Purchases of new U.S. homes unexpectedly jumped 12.4% last month to the highest level in almost nine years, the Commerce Department reported Tuesday.
Toll shares jumped 7.8% to $31.61 at 3:10 p.m. in New York after earlier surging as much as 9.6%, their biggest intraday increase since April 2013. An S&P index of 15 homebuilders rose 3.2%.
Toll had been the worst performer in the S&P index this year. The shares fell 12% through Monday, compared with a 1.5% gain in the broader measure.
The company is demonstrating an ability to increase sales of luxury homes amid fears of a fading market, Michael Rehaut, a JPMorgan Chase & Co. analyst, wrote in a research note Tuesday.
"Critically, we believe this positively addresses investors' primary concern with this stock — demand at the high-end price point," he said. "We believe this strength continued into August with non-binding deposits up 23% in the first three weeks of the month."
The company delivered 1,507 homes in the third quarter, up 6%, while the average selling price climbed 16% to $843,000. Net signed contracts rose 18% to $1.45 billion and 1,748 units. The gross margin, as a percentage of revenue, was 21.9%, up from 19.8% a year earlier. For Toll's City Living division, which includes its New York condominium projects, the gross margin fell to 39.8% from 43.2%.
"Land in the right locations and with the right brand are doing well, and I am really proud that our 18% order growth this quarter was right at the top of our industry," Yearley said.
Toll reduced its forecast for adjusted gross margin for the full fiscal year, citing a shift in the mix of properties it expects to deliver. The builder projected an adjusted gross margin, which excludes interest and inventory writedowns, of 25.6% to 25.8%, or three-tenths of a percentage point below the midpoint of its previous projection. Toll said it expects full-year revenue of $4.96 billion to $5.27 billion, an increase of as much as 26% from 2015.
"While each quarter, some segments may go up or down in volume or profitability, we continue to maintain solid margins," Chief Financial Officer Martin Connor said in the statement.
