Zacks Commentary

Homebuilder Toll Brothers, Inc. (TOL) is set to unveil its second quarter 2012 results on May 23, 2012, before the start of trading. The Zacks Consensus Estimate for the second quarter is 4 cents per share on revenues of $379 million (year-over-year increase of 18.4%).

First Quarter Recap

Toll Brothers recorded a loss of $2.8 million or 2 cents per share in the first quarter of fiscal 2012 ended January 31, 2012 compared with a profit of $3.4 million or 2 cents per share in the same quarter of fiscal 2011 and the Zacks Consensus Estimate of a profit of 3 cents per share.

Revenues dipped 4% to $322.0 million during the quarter on a 1% fall in home building deliveries to 564 units. It was lower than the Zacks Consensus Estimate of $358 million.

Agreement of Estimate Revisions

Over the past 7 days, all the 14 analysts providing estimates on Toll Brothers have left their earnings estimates for the second quarter of 2012 unchanged. However, over the last 30 days 1 analyst has revised the earnings estimate for the second quarter of 2012. The revision has been in the upward direction.

Earnings estimates for 2012 have also been increased by just one of the 17 analysts providing estimates on the stock over the last 30 days. There were no revisions in estimates over the past 7 days for 2012.

We believe 2012 may prove to be the first year of U.S. housing recovery, despite macroeconomic uncertainties and housing conditions remaining soft. Management also expects demand for new homes to ramp up in the latter half of the year.

Adoption of strategies like investing capital for expansion projects, managing inventory levels efficiently, improving gross margins and controlling SG&A and interest costs would act as tailwinds, which partly explains the upward revisions by analysts.

Magnitude of Estimate Revisions

Given the lack of revisions, the estimate for the second quarter of fiscal 2012 has remained static over the last 7 days at 4 cents and at 34 cents for fiscal 2012. Over the past 30 days, the consensus estimate has gone up by a penny from 3 cents to 4 cents for the second quarter of 2012, and from 33 cents to 34 cents for fiscal 2012.

Surprise History

Toll Brothers has surpassed earnings estimates in only one of the last four quarters. The company recorded a maximum positive surprise of 80.00%, with a minimum surprise of negative 166.67% in the first quarter of 2012. On average, the earnings surprise was a negative 35.00%.

Our Recommendation

We currently have a Neutral recommendation on Toll Brothers. The stock carries a Zacks #3 Rank (a short-term Hold rating).