Toll narrows home sales forecast as revenue misses estimates

Toll Brothers Inc, the largest US luxury homebuilder, reported lower-than-expected third-quarter revenue as a lull in demand last year meant that it handed over fewer homes in the quarter, and the company narrowed its 2015 home sales forecast. Shares of Toll Brothers, which builds homes that can cost upward of $2 million, fell as much as 2.6 percent in early trading on Tuesday.
US housing demand softened in the last few months of 2014 due to a slight increase in mortgage rates and a weak economy, leading to lower orders during the period. Builders take 9-12 months to complete construction after an order and only book revenue after handing over a home. Latest data, however, points to a pick up in the housing recovery this year. Housing starts rose to a near eight-year high in July, while homebuilder sentiment touched its highest in almost a decade.
Toll Brothers said orders rose 12 percent to 1,479 homes in the third quarter ended July 31 at an average price of $834,000, the highest in the company's history. Orders have risen 16 percent so far in the quarter started August, the company said. "This housing recovery appears to be built on a very solid foundation," Chief Executive Douglas Yearley said in a statement.
The world's No 1 home-improvement retailer Home Depot Inc reported strong results for the past quarter, buoyed by the housing recovery. Toll Brothers targets customers who typically make at least $100,000 a year and are therefore less affected by slight changes in interest rates. The Federal Reserve is widely expected to raise interest rate this year, but growing worries about China recently have led most traders to lower expectations of an increase in September.
Horsham, Pennsylvania-based Toll Brothers now expects to sell 5,350-5,650 homes in 2015, compared with its previous forecast of 5,300-5,900. The company, however, raised the lower end of its 2015 average selling price forecast. "As we approach the next stage of the recovery, we expect Toll will outperform," UBS analyst Susan Maklari said.