Financial Fall: Toll Brothers reports loss

February 27, 2008 4:26:38 PM PST
Luxury-home builder Toll Brothers Inc. said Wednesday it swung to a loss in the first quarter as write-downs on properties it could no longer sell at a profit more than doubled and its sales tumbled 23 percent.

Chief Executive Robert Toll said in a conference call with analysts that the selling season that started in mid-January has been "weak for the third year in a row," but there were a few "glimmers of hope" in areas such as Naples, Fla. and suburban Washington, D.C.

The Horsham, Pa.-based company lost $96 million, or 61 cents per share, in the three months ended Jan. 31 compared with profit of $54.3 million, or 33 cents per share, a year earlier.

According to Thomson Financial, Wall Street analysts expected a loss of 50 cents per share.

Results included pre-tax write-downs of $245.5 million, of which $27.8 million was connected to joint ventures. A year ago, pre-tax writedowns and a goodwill impairment totaled $105.9 million.

Excluding the write-downs, Toll Brothers would have posted earnings of $57.3 million, or 35 cents per share.

Sales fell to $842.9 million from $1.09 billion in the same period last year. But analysts expected an even steeper drop to $818.2 million.

Toll Brothers' stock rose 71 cents, or 3 percent, to close Wednesday at $23.83. Its shares got a boost along with those of other homebuilders after regulators Wednesday allowed Fannie Mae and Freddie Mac to buy more mortgages. The two organizations are the biggest sources of financing for home loans.

But Toll quickly dampened any speculation that the housing market has bottomed.

"I'm not ready to say on this call that we're back," he said. "It's a glimmer and let's hope the good times stick."

Better housing affordability will help sales unless mortgage rates spike, said Daniel Oppenheim, an analyst at Banc of America Securities, in a research note.

The Toll Brothers earnings report came as the government reported that sales of new homes fell 2.8 percent in January, pushing activity down to its slowest pace in nearly 13 years.

Toll Brothers said its sales were softest in the South - comprising Florida, Texas, the Carolinas and starting in January, Georgia - down 44 percent to $138.7 million from a year ago.

The West and Mid-Atlantic states fell 25 percent and 24 percent respectively, to $226.5 million and $250.3 million. The West spans California, Arizona, Colorado and Nevada while the Mid-Atlantic states for Toll Brothers are Pennsylvania, Delaware, Maryland, Virginia and West Virginia.

Sales in the North rose by 7.4 percent to $226.8 million. The North spans Connecticut, Illinois, Massachusetts Michigan, Minnesota, New Jersey, New York and Rhode Island.

The pace of cancellations slowed in the quarter, with 257 homes at a value of $198 million. In the fourth quarter, contracts on 417 homes worth $328.5 million were canceled. In the first quarter of 2007, Toll saw buyers cancel 436 contracts on homes collectively valued at $318.9 million.

Buyers paid an average price of $634,000 per home in the quarter, down from $730,000 a year ago. Toll Brothers said the price drop was mainly due to a shift in sales to lower-priced condo units as well as increased incentives.

Net signed contracts, a measure of future business, fell by 50 percent to $375.1 million in the quarter with 647 homes.

The first-quarter backlog on homes sold but yet to be delivered was $2.4 billion, down 42 percent from a year ago.


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