Toll Brothers Posts 85% Drop in Net
On Writedowns, Slower Construction
By JONATHAN VUOCOLO and ELANA BEISER
August 22, 2007
Toll Brothers Inc.'s fiscal third-quarter net fell 85% as the luxury-home builder recorded more land writedowns amid continued slowing in new home construction.
Chairman and Chief Executive Robert Toll said in a statement that the builder had experienced "a much higher rate of cancellations than at any time in our 21-year history as a public company" due to the downturn in the housing market.
For the quarter ended July 31, the Huntingdon Valley, Pa., firm posted net income of $26.5 million, or 16 cents a share, compared with $174.6 million, or $1.07 a share, a year earlier. The latest quarter's results included pretax writedowns of $147.3 million. Toll said two weeks ago it would record pretax writedowns of $125 million to $175 million as home builders lower the value of undeveloped land on their books. Excluding writedowns, earnings for the fiscal third-quarter would have been 70 cents a share, the company said. The mean estimate of analysts polled by Thomson Financial was for a loss of 2 cents a share.
Toll released some preliminary results two weeks ago. It said home-building revenue fell 21% to $1.21 billion, topping analysts' forecast of $1.08 billion, as the value of net signed contracts fell 31% to $727.1 million and the number of gross contracts signed dropped 17% to 1,457. Toll's cancellation rate rose to 24% from 19% in the fiscal second quarter. The number of cancellations, 347, was the lowest in a year.
At the time, Mr. Toll said, "The pace of home sales could slow further until the credit market settles down." In the two weeks since he made those comments, the credit markets have become much more roiled. Wednesday, he expressed concern about the "dislocation" in the secondary mortgage market and said tightening credit standards will shrink the pool of potential home buyers, but added that he expects Toll's profile as a luxury builder for buyers with attractive credit profiles to help the company whether the storm.
"Mortgage-market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes," Mr. Toll said. "However, we believe that our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles."
The company declined to provide any earnings guidance or update any previous forecasts. Chief Financial Officer Joel Rassman cited "numerous uncertainties surrounding sales paces, the mortgage markets, market direction and the potential for and size of future impairments."
Toll also declined to give earnings guidance two weeks ago, citing market conditions. In May, the company declined to update its earnings forecast. The firm's last outlook, given in February, was for fiscal-year earnings of $1.46 to $1.85 a share. Analysts' mean estimate is for earnings of 84 cents a share.
"We believe that reducing new home production until the current oversupply is absorbed is a key step in bringing housing markets back into equilibrium," Mr. Toll said, adding that last week's data on housing starts data implied that this is beginning to occur.
On Writedowns, Slower Construction
By JONATHAN VUOCOLO and ELANA BEISER
August 22, 2007
Toll Brothers Inc.'s fiscal third-quarter net fell 85% as the luxury-home builder recorded more land writedowns amid continued slowing in new home construction.
Chairman and Chief Executive Robert Toll said in a statement that the builder had experienced "a much higher rate of cancellations than at any time in our 21-year history as a public company" due to the downturn in the housing market.
For the quarter ended July 31, the Huntingdon Valley, Pa., firm posted net income of $26.5 million, or 16 cents a share, compared with $174.6 million, or $1.07 a share, a year earlier. The latest quarter's results included pretax writedowns of $147.3 million. Toll said two weeks ago it would record pretax writedowns of $125 million to $175 million as home builders lower the value of undeveloped land on their books. Excluding writedowns, earnings for the fiscal third-quarter would have been 70 cents a share, the company said. The mean estimate of analysts polled by Thomson Financial was for a loss of 2 cents a share.
Toll released some preliminary results two weeks ago. It said home-building revenue fell 21% to $1.21 billion, topping analysts' forecast of $1.08 billion, as the value of net signed contracts fell 31% to $727.1 million and the number of gross contracts signed dropped 17% to 1,457. Toll's cancellation rate rose to 24% from 19% in the fiscal second quarter. The number of cancellations, 347, was the lowest in a year.
At the time, Mr. Toll said, "The pace of home sales could slow further until the credit market settles down." In the two weeks since he made those comments, the credit markets have become much more roiled. Wednesday, he expressed concern about the "dislocation" in the secondary mortgage market and said tightening credit standards will shrink the pool of potential home buyers, but added that he expects Toll's profile as a luxury builder for buyers with attractive credit profiles to help the company whether the storm.
"Mortgage-market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes," Mr. Toll said. "However, we believe that our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles."
The company declined to provide any earnings guidance or update any previous forecasts. Chief Financial Officer Joel Rassman cited "numerous uncertainties surrounding sales paces, the mortgage markets, market direction and the potential for and size of future impairments."
Toll also declined to give earnings guidance two weeks ago, citing market conditions. In May, the company declined to update its earnings forecast. The firm's last outlook, given in February, was for fiscal-year earnings of $1.46 to $1.85 a share. Analysts' mean estimate is for earnings of 84 cents a share.
"We believe that reducing new home production until the current oversupply is absorbed is a key step in bringing housing markets back into equilibrium," Mr. Toll said, adding that last week's data on housing starts data implied that this is beginning to occur.
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