Analyst Note| Brian Bernard, CFA, CPA |
With United States housing data deteriorating in recent months, we had expected Toll Brothers’ fiscal third-quarter new orders to fall short of prior-year levels, but the 60% year-over-year decline (to 1,266 orders) was much worse than we were anticipating. While the no-moat-rated homebuilder increased sales incentives (for example, mortgage buydowns or home design upgrades) as the quarter progressed, management refrained from becoming overly aggressive on incentives to boost sales pace at the expense of gross margin. Indeed, incentives, which increased to $30,000 per home on average in August, pale in comparison with average selling prices that exceeded $1 million. Nor has management resorted to wide-scale price adjustments to stimulate demand. Excluding the favorable effect of contract amendments (for home upgrades), new order ASP increased approximately 7% year over year to about $1.15 million.