Luxury homebuilder Toll Brothers Inc. reported tepid quarterly order growth and a rise in cancellations and warned that stock market volatility and economic uncertainty continue to weigh on homebuyer confidence.
Toll, which builds higher-end single-family homes, said on Wednesday that contracts for new homes signed in the latest quarter rose 2 percent in both dollars and unit terms, disappointing analysts and signaling that even affluent homebuyers are hesitant.
Order cancellations rose to 7.4 percent from 6.2 percent.
"Nothing shows you the consumer is getting skittish more than tepid orders and higher cancellations," said Demir Gjokaj, senior homebuilder and real estate analyst with ITG Investment Research. He was expecting an 18 percent rise in orders, while Wall Street analysts on average forecast 12 percent.
Toll’s clientele of affluent homebuyers — who have had an easier time landing mortgages — and its focus on the U.S. Northeast from Washington to Boston, where the real estate market has proven more resilient, should be a buffer. That could make the modest rise in orders indicative of a broader malaise.
"The luxury consumer is pulling back," Gjokaj said, raising the possibility that homebuilders may have to cut prices if demand does not start showing more vigor.
Toll’s revenue in the fiscal third quarter, ended July 31, fell 13.2 percent to $394.3 million, missing the average Wall Street estimate of $403.6 million, according to Thomson Reuters I/B/E/S.
Deliveries fell 14 percent to 693 homes. Net signed contracts climbed 2 percent to $406.7 million.
Toll, based in Horsham, Penn., said it now expects to deliver between 2,475 and 2,675 homes in the fiscal year ending in late October, compared with an earlier forecast of 2,300 to 2,800.
That implies between 620 and 820 deliveries in the current quarter, with Toll estimating the homes will go on average for between $555,000 and $570,000.
Chief Executive Douglas Yearley said in a statement that renewed economic volatility was contributing to homebuyers’ continued anxiety.
"The stock market gyrations, the budget impasse and the U.S. government bond rating downgrade are certainly not helping consumer confidence," Yearley said.
A U.S. Commerce Department report on Tuesday showed new single-family home sales slipped 0.7 percent in July to an annual rate of 298,000, the lowest since February.
Net income in the third quarter was $42.1 million, or 25 cents a share, up from $27.3 million, or 16 cents a share, a year earlier. Most of the profit in the latest quarter came from a reversal of previously accrued state and federal taxes.
Shares in the company, whose rivals include KBHome, PulteGroup Inc. and D.R. Horton Inc., were up 14 cents to $14.88 in premarket trading.
