May 22, 2018 10:00 am eastern

Toll Brothers has fallen about 8% this morning after releasing earnings.

I though the earnings release had good points (revenues up 17%, home deliveries up 15% in dollars) but the bottom line earnings were down slightly (probably partly due to higher lumber costs) and pre-tax income was down 30% (mainly due to higher income from joint ventures in the prior year).

Activity is very strong with net signed contracts for new houses up 18% in dollars and 6% in units. They are selling homes in 290 communities and plan to open 75 new ones in the next six months. They will complete selling in many communities and the net community count in six months will be about 315. The company expects 2019 to be another year of growth.

It appears that the market is focusing more on the current level of profit and gross margin and less on the projected growth.

I did what I normally do in these situations and added to my position this morning. Unfortunately, it appears that more patience will be needed for this stock. The stock has done quite well in 2017, rising 55%. But the result in 2018 has been disappointing with the stock down 16%.

For reasons that I am not clear on, the income tax rate remains high at 27% in Q2 rather than the 21% or so that is the typical GAAP rate under the Trump tax custs.