Toll Brothers Miss, Falling Mortgage Data Can Impact This Bullpen Name
Here's what we're listening for during the homebuilder's earnings call as we shape our housing and construction thesis.
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Coming into Wednesday morning’s January Housing Starts report, we’ve seen the Atlanta Fed’s rolling GDP forecast for the current quarter slip to 2.3%.
While still a nicely growing economy, that figure points to a slower rate of growth compared to the 2.9% to 3.0% figure the model indicated earlier this month. We’re not going to get all that bothered by that downshift in part because it only reflects just over half of a month of data for the quarter.
Wednesday morning’s January Housing Starts came in weaker than expected at 1.366 million, down from the upwardly-revised 1.515 million figure for December and the market forecast of 1.390 million.
Some of this is likely due to the winter weather and West Coast fires, but when we look at the number of new privately-owned housing units under construction, we see a steady decline in the not-seasonally adjusted data for single-family houses since September. We also see the impact of recent inflation data taking a toll on the Mortgage Banker Association’s (MBA) Mortgage Purchase Index.
Those data points and others provide the context for Tuesday night’s earnings miss from higher-end homebuilder Toll Brothers TOL.
Margins were a key factor in that miss as they fell to 26.9% compared to 28.9% in the year-ago quarter and continued the downward year-over-year trend that started a few quarters back.
On Wednesday morning’s earnings call, we’ll be interested in the use of incentives to win business and how that plays into the outlook for lower margins this year compared to last year. We’ll also be curious as to how Toll sees potential Trump tariffs impacting its business as well as its profitability.
As we digest those learnings, we’ll update our thinking in Bullpen resident Builders FirstSource BLDR.
