Majestic Research

Reuters

Toll Brothers Sees Home-building Rev, Orders Down

By Ilaina Jonas
Published: February 08, 2007

Luxury home builder Toll Brothers Inc. said on Thursday it expects quarterly orders and home-building revenue to fall significantly and sees a greater-than-expected charge to write down land values, sending its shares lower by nearly 4 percent.

For about a year, home building has fallen off sharply as the U.S. housing demand dropped due to high prices and interest rates. Investors, home builders and other industry watchers have been looking for signs of a trough.

“It does not look better,” Majestic Research analyst John Tomlinson said.

The weak industry also has affected lenders. HSBC Holdings Plc and New Century Financial Corp. , two of the biggest lenders to Americans with poor credit histories said earlier this week that rising defaults would weigh on results.

Toll’s preliminary home-building revenue fell 19 percent to $1.09 billion in its fiscal first quarter, ended in January.

First-quarter net contracts were off 33 percent to 1,027 units, while the value dropped 34 percent to $749 million.

The first-quarter cancellation rate was 29.8 percent, down from the prior quarter’s rate of 36.9 percent, but still well above the company’s historic average of about 7 percent.

“They’re definitely weak, and it’s on a very easy comparison,” Tomlinson said.

“Last year they posted their first significant decline in orders,” he said. “So it’s a 30-plus decline off of another 30-plus decline.”

Grim Reality

The lower cancellation rate was primarily due to a smaller backlog of homes on order and those waiting to be built. That was down 30 percent from a year ago to $4.15 billion.

Horsham, Pennsylvania-based Toll said markets in Manhattan and Brooklyn in New York City, and Hoboken and Jersey City in New Jersey—across the Hudson River from Manhattan—remained relatively unscathed from the broader housing downturn.

“Some markets, such as Detroit, Minneapolis, Chicago, Reno and parts of Florida, may not yet have stabilized,” Robert Toll, the chairman and chief executive, said in a statement.

Even so, the company expects to take a first-quarter charge of at least $60 million to write down land values and it could exceed $160 million.

Shares fell $1.32, to $33.11 on the New York Stock Exchange, after touching an intraday low of $32.80 shortly after the opening bell.

Shares of others in the sector, such as fellow luxury builder Hovnanian Enterprises Inc. also fell. The Dow Jones U.S. Home Construction Index <.DJUSHB>, a yardstick that measures home builder performance, was off 3 percent.

Since the beginning of Toll’s fiscal first quarter, shares have risen 14.5 percent versus the Dow home construction index, which is up 12.3 percent.