Majestic Research

Bloomberg

Toll First-Quarter Profit Falls 67% on Land Writedown

By Peter Woodifield and Brian Louis
Published: February 22, 2007

Toll Brothers Inc., the largest U.S. luxury-home builder, said fiscal first-quarter profit slid 67 percent on expenses to write down the value of land after a year of plummeting home sales.

Net income fell to $54.3 million, or 33 cents a share, from $163.9 million, or 98 cents, a year earlier, Horsham, Pennsylvania-based Toll said today in a statement. The shares rose as much as 2 percent as profit beat estimates and the $96.9 million land writedown was less than earlier forecast.

Toll cut its profit forecast for the fiscal year and lowered its estimate for home deliveries in 2007 as orders slumped. Chief Executive Officer Robert Toll said today “there are too many soft markets at this stage of the selling season to call a general upturn in the new home market.” In December, he said the market was nearing a “bottom.”

“The high end of the market is still very weak,” John Tomlinson, an analyst at Majestic Research in New York, said in an interview. “The land write downs weren’t as drastic as they signaled they could be, but there’s a great deal of uncertainty about future write downs.”

Housing Outlook

Shares of Toll fell 8 cents to $32.78 at 9:55 a.m. in New York Stock Exchange composite trading, after earlier rising to $33.53. Toll shares gained 6.8 percent in the past year, compared with an 18 percent decline in a Standard & Poor’s measure of homebuilding stocks.

Homebuilders including Lennar Corp. and D.R. Horton Inc. are struggling as inventories swell with customers staying on the sidelines or canceling contracts. While some analysts have said the home market is stabilizing, sales of new U.S. houses will decline until the fourth quarter as an oversupply saps demand, the National Association of Realtors said on Feb. 7.

Toll forecast earnings of $1.46 to $1.85 a share for fiscal 2007, less than an earlier estimate of $1.58 to $2.08. The company said it will probably deliver 6,000 to 7,000 houses during the year, compared with an earlier forecast of 6,300 to 7,300 properties.

In addition to the land expenses, Toll also took a charge of $9 million in the first quarter relating to an acquisition in Detroit in 1999.

Excluding the writedowns and charge, earnings for the period ended Jan. 31 fell 27 percent to 72 cents a share. The average estimate of analysts surveyed by Bloomberg was for earnings of 27 cents a share excluding some items.

Revenue dropped 19 percent to $1.09 billion. The average price of a Toll house in the quarter was $676,139, down from $680,522 a year earlier.

More Writedowns

Toll’s earnings forecast for the fiscal year assume additional writedowns of $60 million in the remaining three quarters. Homebuilding revenue will be between $4.2 billion and $4.96 billion, the company said.

Toll forecast on Feb. 8 that writedowns in the fiscal first-quarter would be as high as $160 million. At the time, the company also reported a 33 percent drop in orders, to 1,027 units.

Economists have said the housing market is showing signs of stabilizing as sales start to increase and builders whittle down the inventory of unsold homes. Still, builders are reporting declines in orders.

“We believe that pent-up demand is building in many markets as potential buyers bide their time until they are confident prices have firmed,” Robert Toll said in the statement.

Toll canceled about 6,300 land plots in the quarter and now has 67,500, compared with 91,200 at the end of April last year, it said today.

Toll said 436 customers, or 30 percent, canceled contracts in the first quarter, down from 585, or 37 percent, in the previous three months. A year earlier, there were 151 cancellations.