Majestic Research

Reuters

Toll Brothers Sees Depressed Home Market

By Ilaina Jonas
Published: February 06, 2008

Toll Brothers Inc, the largest luxury home builder, said on Wednesday it expects to report a 22 percent drop in fiscal first-quarter home-building revenue, amid a depressed housing market.

The preliminary results helped drag down the home-building sector. Toll shares were down 1.5 percent, while the broader Dow Jones U.S. home-building index fell 2 percent in early trading.

“The housing market remains very weak in most areas,” Chief Executive Robert Toll said in a statement. “Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel.”

Preliminary results for the quarter ended January 31 showed home-building revenue of $842.7 million, down from $1.09 billion in the year-earlier quarter. It is scheduled to release final results for the quarter on February 27.

The company expects to take $150 million to $300 million in first quarter pretax write-downs of land and land options.

The U.S. housing market has been in a tailspin for more than two years, as demand falls and builders cut prices in the face of dwindling orders.

To navigate the downturn, U.S. builders have shifted their focus to survival, turning the excess land and inventory accumulated during the boom times of 2002 to 2006 into cash. Investors have put their dollars in companies they believe will endure the downturn.

Toll’s balance sheet is stronger than that of most other publicly traded home builders because it bought or optioned many of its lots earlier, when prices were lower, and in more expensive areas that tend to keep their value.

Meanwhile, investors have been judging home builders on their viability instead of profitability, as most have been reporting losses rather than profits.

Toll ended the quarter with around $950 million in cash and more than $1.2 billion available under its multi-bank credit facility, which matures in March 2011.

“The balance sheet looks pretty solid, but as some point you would like traffic, orders and demand pick up,” Majestic Research analyst John Tomlinson said.

The company said net signed contracts during the quarter, after cancellations, totaled 647 homes, down 37 percent from a year earlier. The fall was even more pronounced—50 percent—in dollar terms, to $375.3 million.

The net contracts called for a home with an average price of $580,000, compared with $634,000 before cancellations. The company attributed the difference to canceled orders for pricier homes and more orders for apartments, which tend to be less expensive than single-family houses.

Shares of Toll Brothers were off 2 percent, or 33 cents, at $21.54 in early Wednesday trade on the New York Stock Exchange.