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Toll Bros. posts 44% decline in profit

The high-end builder's shares rise 3% on hopes that the worst is over for the housing market.

December 06, 2006|From Reuters

Luxury home builder Toll Bros. Inc. reported a 44% drop in quarterly profit Tuesday but signaled that the worst might be over for the sagging housing market.

Hopes for an end to the decline in housing sent Toll shares up 3%.

The market was "dancing along the bottom for a couple of months," Chief Executive Robert Toll said in a conference call with analysts. "It appears that we are now off the bottom."

The executive, one of the first leaders in the home-building sector to report a slowing in certain hot markets in the summer of 2005, said conditions appeared to be stabilizing in Washington's northern Virginia suburbs, certain markets in Florida and Northern California.

"That's the key here," BB&T Capital Markets analyst Jack Kasprzak said. "That's what everyone wants to see, some sign that the market's stabilizing."

Reno, Las Vegas and Phoenix continue to sour, Toll said.

After several strong years, the housing market deteriorated sharply as interest rates rose and high prices drove would-be buyers out of the market.

For its fiscal fourth quarter ended Oct. 31, Toll said its profit fell to $173.8 million, or $1.07 a share, from $310.3 million, or $1.84, a year earlier. Analysts had expected $1.06 a share. The results included land-related write-downs of $115 million, with about 70% coming from softness in California and Michigan.

Revenue, which reflects completed sales, fell to $1.81 billion from $2.02 billion.

The value of new contracts signed in the quarter fell 56%.

The number of new contracts was down 32.7% from the third quarter, a drop slightly bigger than the 32.5% decline from the second quarter to the third.

Robert Toll said that he was not optimistic and that he was just stating the "heartening" pickup over the last month that he had seen in several markets.

Citing the uncertain market conditions, D.R. Horton Inc., the largest U.S. home builder, last month declined to offer investors a financial forecast for 2007.

Toll shares rose 96 cents to $32.87 on Tuesday. This year the shares have fallen 5%, contrasting with a 19% slide in the Dow Jones U.S. home construction index. The index rose 2.5% on Tuesday.

The company forecast earnings of $1.58 to $2.08 a share for fiscal 2007, compared with $4.17 a share in 2006. The average selling price of a home is expected to range from $660,000 to $770,000.

"The current market conditions make it even more difficult to estimate revenues, costs or profits," Chief Financial Officer Joel Rassman said.

The outlook includes the effect of a change of accounting method that the company anticipates will shift earnings of 22 to 29 cents a share from 2007 to subsequent years.

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