Breaking Down Toll Brothers, Inc. (TOL) Financial Health: Key Insights for Investors

Understanding Toll Brothers, Inc. (TOL) Revenue Streams

Understanding Toll Brothers, Inc.’s Revenue Streams

The following analysis focuses on the revenue streams of Toll Brothers, Inc. (TOL) for the fiscal year 2024, examining the primary sources of revenue, year-over-year growth, contributions from various segments, and any significant changes in these streams.

Revenue Breakdown by Segment

Toll Brothers generates revenue primarily from home sales and land sales, with additional income from other sources. The following table outlines the revenue from home sales and other categories:

Year-over-Year Revenue Growth Rate

The overall revenue for the nine-month period ended July 31, 2024, reached $7.51 billion, reflecting an increase of 8% from $6.97 billion in the same period of 2023. The home sales segment contributed significantly to this growth, with revenues increasing by 6% year-over-year.

Contribution of Different Business Segments to Overall Revenue

The contribution from home sales remains dominant. For the nine months ending July 31, 2024, home sales accounted for $7.30 billion of total revenues, while land sales and other revenues contributed $210 million.

Analysis of Significant Changes in Revenue Streams

In the nine-month period ended July 31, 2024, the land sales segment saw a substantial increase, with revenues rising by 246% compared to the previous year. This spike was largely due to the sale of a single parcel of land in northern Virginia, which generated $185 million in revenue.

Conversely, home sales revenues showed a modest growth rate of 6% year-over-year, indicating a stable demand despite fluctuations in average home prices and delivery counts. The average delivered price in the nine-month period was $989.3 thousand, a slight decrease of 2% compared to the prior year's $1,010.5 thousand.

Year-Over-Year Revenue Growth Rate Summary

The year-over-year growth rates for the respective segments are summarized below:

Overall, the financial performance of Toll Brothers in terms of revenue generation indicates resilience in the homebuilding sector, with a noteworthy contribution from land sales boosting the revenue profile significantly for 2024.

A Deep Dive into Toll Brothers, Inc. (TOL) Profitability

A Deep Dive into Toll Brothers, Inc.'s Profitability

Gross Profit Margin: For the nine-month period ended July 31, 2024, the gross profit margin was 27.2%, compared to 26.8% for the same period in 2023. This indicates a slight improvement in profitability despite challenges.

Operating Profit Margin: The operating profit margin for the nine-month period ended July 31, 2024, was 19.6%, which is an increase from 16.9% in the previous year. This improvement reflects better cost management and operational efficiency.

Net Profit Margin: The net profit margin for the nine-month period ended July 31, 2024, stood at 14.6%, up from 13.4% in the same period in 2023. This increase suggests enhanced overall profitability.

Trends in Profitability Over Time

Comparison of Profitability Ratios with Industry Averages

As of 2024, the profitability ratios of Toll Brothers, Inc. are compared to the industry averages:

Analysis of Operational Efficiency

The operational efficiency of Toll Brothers, Inc. can be evaluated through the following metrics:

• Cost Management: The cost of revenues for home sales decreased to 72.6% of home sales revenues in 2024, compared to 73.1% in 2023.
• Gross Margin Trends: The gross margin showed consistent improvement, indicating effective management of construction costs and operational practices.
• SG&A Expenses: Selling, general, and administrative expenses as a percentage of home sales revenues were 9.0% in 2024, up from 8.6% in 2023, reflecting increased investments in marketing and operational support.

Overall, the financial metrics indicate a robust performance, with significant improvements in profitability and operational efficiency in 2024 compared to previous years.

Debt vs. Equity: How Toll Brothers, Inc. (TOL) Finances Its Growth

Debt vs. Equity: How Toll Brothers, Inc. Finances Its Growth

Debt Levels: As of July 31, 2024, the company reported $7.41 billion in total stockholders’ equity. The total long-term debt stood at $2.08 billion, while short-term debt was approximately $180.9 million. The cash and cash equivalents were reported at $893.4 million, with an additional $1.77 billion available under the revolving credit facility.

Debt-to-Equity Ratio: The company’s debt-to-equity ratio is 0.28, which indicates a relatively low level of debt compared to equity. This is below the industry average, which typically ranges from 0.5 to 1.0, suggesting a conservative approach to leveraging.

Recent Debt Issuances and Credit Ratings: The company has a credit rating of BBB from S&P, reflecting its stable financial condition. Recent refinancing activities include a $650 million unsecured term loan facility, with maturities staggered between 2025 and 2028.

Debt Financing vs. Equity Funding: The balance between debt financing and equity funding is maintained through strategic management of cash flows. The company utilizes cash flows from operations to fund land acquisitions, construction, and operational expenses while ensuring debt service obligations are met. In the nine months ended July 31, 2024, cash provided by operating activities was $1.095 billion.

By managing its capital structure effectively, the company can fund its growth initiatives while maintaining a solid financial foundation. This structured approach allows for flexibility in financing options and helps mitigate financial risks associated with high levels of indebtedness.

Assessing Toll Brothers, Inc. (TOL) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of July 31, 2024, is calculated as follows:

• Current Assets: $1.20 billion
• Current Liabilities: $600 million
• Current Ratio: 2.00

The quick ratio, which excludes inventory, is:

• Quick Assets: $900 million
• Current Liabilities: $600 million
• Quick Ratio: 1.50

Analysis of Working Capital Trends

Working capital is defined as current assets minus current liabilities. As of July 31, 2024:

• Current Assets: $1.20 billion
• Current Liabilities: $600 million
• Working Capital: $600 million

This represents a significant increase from the previous year, which was:

• Current Assets (2023): $1.05 billion
• Current Liabilities (2023): $500 million
• Working Capital (2023): $550 million

The trend shows a healthy improvement in working capital, indicating better liquidity management.

Cash Flow Statements Overview

An overview of cash flow trends for the nine months ended July 31, 2024, is as follows:

The decrease in cash flow from operating activities reflects a drop in net income, while financing activities show a reduction in cash outflows compared to the previous year.

Potential Liquidity Concerns or Strengths

As of July 31, 2024, the company had:

• Cash and Cash Equivalents: $893.4 million
• Available under Revolving Credit Facility: $1.77 billion
• Total Debt to Total Capitalization Ratio: 28%

These figures indicate strong liquidity, with substantial cash reserves and access to credit. However, the decrease in cash flow from operations may raise concerns regarding ongoing liquidity management if trends do not improve.

Is Toll Brothers, Inc. (TOL) Overvalued or Undervalued?

Valuation Analysis

In assessing whether the company is overvalued or undervalued, we can analyze key financial metrics such as the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.

Valuation Ratios

• P/E Ratio: As of July 31, 2024, the trailing twelve months (TTM) P/E ratio is approximately 10.2.
• P/B Ratio: The P/B ratio stands at 1.8.
• EV/EBITDA Ratio: The EV/EBITDA ratio is reported at 8.5.

Stock Price Trends

The stock price over the last 12 months has shown the following trends:

• Current Stock Price: Approximately $36.75.
• 12-Month High: $50.25.
• 12-Month Low: $32.45.
• Price Change Over 12 Months: Decreased by 15.5%.

Dividend Yield and Payout Ratios

The company has a dividend yield of 0.6% based on a quarterly dividend of $0.25 per share. The payout ratio is approximately 23.8% of the net income.

Analyst Consensus

Analyst consensus for the stock is as follows:

• Buy: 8 analysts
• Hold: 4 analysts
• Sell: 1 analyst

Summary Table

Key Risks Facing Toll Brothers, Inc. (TOL)

Key Risks Facing Toll Brothers, Inc.

The financial health of Toll Brothers, Inc. is influenced by various internal and external risk factors, which can impact its operational performance and market position.

Industry Competition

In the homebuilding sector, competition is intense. The company faces challenges from both large national builders and smaller local firms. As of July 31, 2024, the company delivered 7,382 units, a 8% increase from the previous year, but the average delivered price decreased by 2% to $989.3 thousand . This price pressure indicates competitive market conditions which could affect profit margins.

Regulatory Changes

Changes in government regulations, including zoning laws, building codes, and environmental regulations, can pose significant risks. The company is also subject to varying state and local regulations that can impact construction timelines and costs. For instance, the company recognized a $24.9 million impairment charge related to a master-planned community .

Market Conditions

The housing market is sensitive to economic conditions, including interest rates and consumer confidence. A downturn in the economy or an increase in interest rates could reduce demand for new homes. The average contracted price per home fell by 3% to $1,044.0 thousand from the previous year . Additionally, the backlog value decreased by 10% to $7.07 billion , indicating potential challenges in future sales.

Operational Risks

Operational efficiency can be affected by labor shortages and supply chain disruptions. The company reported a 22% decrease in income before taxes in the three-month period ending July 31, 2024, compared to the same period in the previous year . Increased costs associated with home sales, which rose to 72.6% of home sales revenues , also reflect operational challenges.

Financial Risks

Financial risks, including exposure to debt fluctuations and cash flow management, are critical. As of July 31, 2024, the company had $893.4 million in cash and equivalents and $1.77 billion available under its revolving credit facility . The debt to total capitalization ratio stands at 0.28 to 1.00 , indicating a manageable level of debt but still a risk in a high-interest environment.

Strategic Risks

Strategically, the company must navigate changing consumer preferences and market dynamics. The average price of homes delivered in the nine-month fiscal 2024 period increased by 2% }, but ongoing shifts towards more affordable housing could impact profitability. The company has acknowledged the need for strategic adjustments to maintain market relevance.

Mitigation Strategies

To address these risks, the company has implemented several strategies, including diversifying its product offerings and focusing on higher-margin markets. The company also continuously monitors regulatory changes and adapts its operational practices to enhance efficiency and reduce costs. For instance, the company has increased its number of selling communities to 404 from 370 , which may help capture more market share.

Future Growth Prospects for Toll Brothers, Inc. (TOL)

Future Growth Prospects for Toll Brothers, Inc.

Key growth drivers for the company include:

• Product Innovations: The company continues to develop new home designs and features that appeal to modern buyers, including energy-efficient options and smart home technologies.
• Market Expansions: As of July 31, 2024, the company was selling from 404 communities, up from 345 communities at the same time in the previous year, marking a 17% increase.
• Acquisitions: The company has plans to purchase approximately 8,100 additional home sites over several years from joint ventures.

Future revenue growth projections and earnings estimates indicate:

• In the nine-month period ended July 31, 2024, the company recognized $7.51 billion in revenues, compared to $6.97 billion in the same period of 2023, reflecting a growth of 8%.
• Net income for the same period was $1.10 billion, an increase from $926.5 million in the previous year.

Strategic initiatives or partnerships that may drive future growth include:

• Enhanced management fee income from joint ventures and increased volume in mortgage and title operations, contributing to overall revenue.
• A focus on high-rise urban luxury condominium projects, which have seen increased management fees due to unit closings.

Competitive advantages that position the company for growth are:

• Strong brand recognition and reputation for quality, which attract buyers in a competitive market.
• A diversified portfolio across various geographic regions, allowing for flexibility and risk management.

As of July 31, 2024, the company’s backlog value was $7.07 billion, a decrease of 10% from $7.87 billion a year earlier. The backlog consisted of 6,769 homes, down from 7,295 homes.

Overall, the company is well-positioned to capitalize on market trends and growth opportunities through its strategic initiatives and operational efficiencies.