Toll Brothers posts 3Q loss as revenue falls
Alex VeigaToll Brothers Inc. said Thursday it swung to a loss in its fiscal third quarter as weak demand for new homes forced the luxury builder to mark down the value of its land and unsold homes.
But Chief Executive Robert Toll said he is seeing signs the market is stabilizing — the company had the lowest contract cancellation rate in more than two years, and more buyers are putting down deposits.
"We believe that there is pent-up demand," Toll said in a statement, but noted the housing market won't begin to recover until the trove of foreclosed homes on the market are sold.
"Unfortunately, we can't predict when that will occur," he said.
The Horsham, Pa.-based builder lost $29.3 million, or 18 cents a share, in the three months that ended July 31. That's a reversal from a profit of $26.5 million, or 16 cents a share, in the year-ago quarter.
Toll absorbed $84.3 million in after-tax write-downs in the quarter. Excluding the charges, earnings were $55 million, or 35 cents a share, and in line with Wall Street estimates.
Quarterly revenue fell 34 percent to $797.7 million from $1.21 billion, as revenue from completed contracts declined.
Still, investors were pleased. Toll's shares rose 27 cents, or about 1 percent, to $25.07 on Thursday.
Like other homebuilders, Toll's business has suffered through the third year of a housing market downturn the CEO called the worst in the company's history. Home sales are declining in the face of competition from heavily discounted foreclosed properties, tougher mortgage lending standards and lagging consumer confidence.
Toll's net contracts for the third quarter plunged 27 percent to 812 homes versus the same quarter last year.
On the bright side, only 195 buyers canceled their contracts.
The company also closed the quarter with a balance-sheet bolstering cash reserve of more than $1.5 billion — a key positive that investors look for in weighing how well the builder can weather the downturn and seize opportunities.
Looking ahead, Toll projected it will deliver between 850 and 1,050 homes in the fourth quarter with an average price between $640,000 and $650,000.
As a result, the company said its fourth-quarter revenue will be lower than in the latest quarter, in part due to generous buyer incentives.
The builder declined to offer earnings guidance.
During a conference call with Wall Street analysts, Toll noted he's seeing interest on the part of hedge funds and banks looking to partner with builders to snap up discounted land in preparation for when the market recovers.
"I expect we'll see some of that teaming up occur in the next six months," Toll said.
In an earlier, separate conference call with analysts, Hovnanian Enterprises Inc. Chief Executive Ara Hovnanian said that while land prices have yet to fall to levels that make economic sense, the homebuilder is already exploring a joint venture with a financial partner he did not name.
"We are not ready to buy new land today, but ... when we see opportunities to buy land we can move quickly," he said.
On Wednesday, Red Bank, N.J.-based Hovnanian reported its fiscal third-quarter loss more than doubled from a year ago.
Hovnanian and Toll each said they saw signs some markets could be improving, but were cautious to call any kind of turnaround.
"I don't mean to suggest that things can't get worse, but it's worth noting some sunlight during otherwise stormy conditions," Toll said.
Hovnanian noted that sales have increased in some markets hardest hit by foreclosures, potentially bringing builders one step closer to better days.
"If these trends continue and start to develop in other markets and month's supply can return to normalized levels and remain there, we could see stability in these and other challenging markets," Hovnanian said.
For the first nine months of its fiscal year, Toll posted a net loss of $219 million, or $1.38 a share. This compared with a net profit of $117.5 million, or 72 cents a share, for the same period a year ago. Excluding write-downs, the builder earned $193.6 million, or $1.18 a share.
Revenues in the first nine months of fiscal 2008 were $2.46 billion, a drop of 29 percent from $3.48 billion in the year-ago period.
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