Home builders have another rough day as Toll Brothers' results confirm concerns
Shares of home building companies are having a difficult day after peer Toll Brothers (TOL) reported quarterly results that were dented by higher costs. Toll Brothers reminded investors of the challenges facing home builder firms earlier when it reported second quarter earnings per share of 72c, way below estimates of 76c, on revenue that was just in-line with Street expectations. COST HEADWINDS CONTINUE: According to various reports out recently, the national labor shortage is making it increasingly difficult and expensive to find construction workers. With that, the price of lumber -- an integral part of the cost of building a home -- is skyrocketing. According to a recent statement from industry research group Wood Markets, the continuation of U.S. duties on Canadian lumber exports to the U.S. are expected to cause more short-term market and price volatility in softwood lumber. "The preliminary duties launched earlier in 2017 rocked the U.S. market and more of the same is expected in 2018." According to the Wall Street Journal, the lumber issue is being exacerbated by a shortage of railcars and trucks to ship the product. Stinson Dean, a broker in Kansas City, Mo., who ships wood from sawmills to lumber yards, said, according to the WSJ. "None of us have experienced a market like this. We are in a lumber supply crisis." Toll's report did nothing to allay these issues as costs jumped 20.5% to $1.29B for the quarter. Gross margins bore the brunt of the increase this quarter, dropping to 22.5% from the year-ago-quarter's 24.3%. PRICE ACTION: Shares of Toll Brothers are down 8.7% to 39.82 per share in afternoon trading. PEERS DOWN: The entire group is in the red, including PulteGroup (PHM), D.R. Horton (DHI), Lennar (LEN), KB Home (KBH), Meritage Homes (MTH), and Beazer Homes (BZH).