Toll Brothers announced results for its third quarter ended July 31, 2015. Net income was $66.7 million, or $0.36 per share diluted, compared to net income of $97.7 million, or $0.53 per share diluted, in FY 2014's third quarter.
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Pre-tax income was $107.5 million, compared to pre-tax income of $151.3 million in FY 2014's third quarter. Included in FY 2015's third-quarter cost of sales were impairments of $18 million and a $4.9 million net increase in reserves, compared to impairments of $6 million and a reserve reversal of $7 million in FY 2014's third quarter.
Revenues of $1.03 billion and home building deliveries of 1,419 units declined 3% in dollars and 2% in units, compared to FY 2014's third quarter. The average price of homes delivered was $724,000, compared to $732,000 in FY 2014's third quarter.
Net signed contracts of $1.23 billion and 1,479 units rose 30% in dollars and 12% in units, compared to FY 2014's third quarter.
The average price of net signed contracts was $834,000, the highest quarterly average in the Company's history, compared to $717,000 in FY 2014's third quarter, driven by an increase in the number and average price of California contracts.
For the first four weeks of August, the start of the Company's FY 2015 fourth quarter, net contracts were up 16% in units compared to the same period in FY 2014.
Backlog of $3.69 billion and 4,447 units rose 19% in dollars and 6% in units, compared to FY 2014's third-quarter-end backlog. This was the highest backlog for any quarter-end in eight years, dating back to FY 2007's second-quarter end.
At FY 2015's third-quarter end, the average price of homes in backlog was $829,000, compared to $737,000 at FY 2014's third-quarter end. This was the first time that the Company's average price in backlog at quarter end exceeded $800,000.
Gross margin was 19.8% in FY 2015's third quarter, compared to 22.7% in FY 2014's third quarter. Excluding interest, impairments and changes in reserves, FY 2015's third-quarter gross margin was 25.6%, compared to 26.1% in FY 2014's third quarter.
SG&A as a percentage of revenue was 11.3%, compared to 10.4% in FY 2014's third quarter.
Income from operations was 8.5% of revenue, compared to 12.3% of revenue in FY 2014's third quarter.
Other income and Income from unconsolidated entities totaled $20.0 million, compared to $21.7 million in FY 2014's third quarter.
At FY 2015's third-quarter end, the Company had approximately 45,400 lots owned and optioned, compared to approximately 45,000 one quarter earlier and 49,000 one year ago.
The Company ended its third quarter with 267 selling communities, compared to 269 at FY 2015's second-quarter end, and 256 at FY 2014's third-quarter end. The Company expects to end FY 2015 with between 270 and 285 selling communities.
The Company expects FY 2015 fourth quarter deliveries of between 1,645 and 1,945 units with an average price of between $780,000 and $800,000. This range results in projected full FY 2015 deliveries of between 5,350 and 5,650 units with an average delivered price of between $745,000 and $760,000.
The Company expects its FY 2015 fourth quarter gross margin, excluding interest, impairments, and changes in reserves, to be approximately 26.7%, resulting in a full FY 2015 gross margin projection, excluding interest, impairments and changes in reserves, of approximately 26.2%.
This is 20 basis points higher than the previous FY 2015 full year guidance. The Company expects continued margin expansion in FY 2016. ■