Majestic Research

Reuters

Toll Brothers Quarterly Profit Falls Sharply

By Ilaina Jonas
Published: February 22, 2007

Toll Brothers Inc. on Thursday said the weak U.S. housing market drove down its quarterly profit by 67 percent after write-downs for lower land values, and the luxury home builder lowered its forecast.

The company said it could not yet see a rebound going into the industry’s spring selling season.

For the fiscal first quarter ended Jan. 31, Toll said it earned $54.3 million, or 33 cents per share, down from $163.9 million, or 98 cents per share, in the year-earlier quarter.

The results included write-downs of $96.9 million for the lower value of the land Toll owns or from forfeiting payments for land options Toll decided not to exercise, as well as a $9 million goodwill impairment charge related to its 1999 acquisition of Silverman Cos. in Detroit.

Excluding these items, the company said it earned 72 cents per share.

Analysts on average had expected the company to earn 36 cents per share, according to Reuters Estimates. The average did not include the acquisition-related charges.  Earlier this month, Toll said first-quarter land charges could run as low as $60 million or as high as $160 million.

Total revenue for the quarter fell 19 percent to $1.09 billion while contracts for new homes fell 33 percent to 1,027 units. The value of the contracts fell 34 percent to $749 million.

Prospective buyers canceled their contracts at a rate of 33 percent during the quarter, Toll had said earlier this month.

U.S. housing demand dropped over the course of the year due to higher prices and interest rates. Investors, home builders and other industry watchers have been looking for signs of an upturn, but Toll’s chief executive expressed caution.

“There are too many soft markets at this stage of the selling season to call a general upturn in the new home market,” Chief Executive Robert Toll said in a statement. “Demand varies greatly from week to week in individual markets.”

The year’s strongest selling period is in its early days and will pick up over the spring quarter. The industry is looking to the spring for an indication of a recovery or a protracted slump.

“It will be an important quarter for them and the industry,” Majestic Research analyst John Tomlinson said.

Based on the company’s current backlog, the impact of lower first-quarter contracts and the continuing higher-than-normal cancellation rate, Toll lowered its forecast for the full year, to net earnings per share of $1.46 to $1.85, including write-downs of $60 million in the remaining three quarters. That’s down from a prior forecast of $1.58 to $2.08. 

The land-related charges could change, Toll said.

The company said it expects to close on the sale of 6,000 to 7,000 homes in 2007. It had earlier forecast a range of 6,300 to 7,300 homes.

Toll said it sees fiscal 2007 home-building revenue in the range of $4.20 billion to $4.96 billion.

In pre-market activity, Toll shares traded at $32.55, down from their Wednesday close of $32.86. Since hitting a recent trough in July 2006, Toll shares have gained about 40 percent, while the Dow Jones U.S. Home Construction Index, a yardstick that measures home builder performance has gained 39 percent.