Toll Brothers Profit Soars, Outlook Raised

Toll Brothers Inc. (TOL), a builder of luxury homes, Wednesday said quarterly profit more than doubled as strong demand in the high-end market enabled the company to sell more homes despite higher prices.

The strong showing prompted the company to raise its outlook for the year, sending its shares more than 3 percent higher.

"We are enjoying strong pricing power and increasing profit margins as demand for luxury homes continues to outpace supply," Robert Toll (search), chairman and chief executive officer, said in a statement.

Toll has been able to lock in land in hard-to-get, desirable locations, enabling it to push up prices for those high-end buyers — an achievement not lost on analysts.

The average price of a home during the first quarter rose to $622,073, up from $543,389 a year earlier.

Horsham, Pa.-based Toll now controls 63,000 home sites — a five-to-six year supply based on the historic pace of expansion.

"Toll is shoring up its land position in markets that have some of the country's most arduous entitlement processes and has a land supply of 6.3 years, which will drive future growth and market share gains," UBS analyst Margaret Whelan wrote in a research note.

Whelan has a price target of $100 on the stock and a "buy" rating. She has raised her 2005 outlook on the shares to $8.25 from $8.02, and for 2006, to $9.35 per share from $8.68.

Despite years-old cries of a housing bubble, Toll's posted earnings for the fiscal first quarter ended Jan. 31 rose 120 percent to $110.2 million, or $1.33 per share, compared with $50.1 million, or 62 cents per share, in the year-ago quarter.

Analysts on average had expected the company to earn $1.15 per share, according to Reuters Estimates.

Toll said quarterly revenue rose to $999.1 million from $597.9 million. The company ended the quarter with a backlog of 7,292 homes worth $4.89 billion under contract and awaiting construction, up 66 percent by value from the 5,079 homes, worth $2.95 billion.

The company said it expects to close on 8,050 to 8,400 homes in 2005, up from its prior forecast of 7,900 to 8,300.

Based on its first-quarter performance and the outlook for home closings, the company said it now expects 2005 net earnings will be 60 percent above the $409.1 million it reported in 2004, up from a prior forecast of 40 percent growth.

Toll is able to gauge fiscal year results with a large measure of assurance because homes that are under contract usually take up to 12 months to build and close. After that, the company can book the home price as revenue.

Analysts expect the company to earn $7.68 per share for the year.

Toll's shares rose $2.92, or 3.6 percent, to $83.96 on the New York Stock Exchange (search). Since the start of the year, its stock has gained 21.27 percent, outperforming the Dow Jones U.S. Home Construction Index (search), a wide barometer of home building stock activity, which is up 5 percent.