2nd UPDATE: Toll Brothers Orders Beat Estimates
August 12 2009 - 10:55AM
Dow Jones News
Toll Brothers Inc. (TOL) said Wednesday that fiscal
third-quarter home orders climbed 3% from a year earlier, stunning
analysts who had predicted double-digit declines and sending the
stock soaring more than 10% in early trading.
In a sign that there's life stirring for higher-end housing, the
Pennsylvania-based luxury builder said net signed contracts during
the three months ended July 31 gained from year earlier, beating
Pali Capital's estimate of a 37% plunge. In dollar terms however,
net signed contracts fell to $447.7 million from $469.9 million a
year earlier.
While orders are not done deals, the builder was encouraged as
its fiscal third quarter was stronger than the second quarter for
only the fourth time in 23 years.
"Although our industry continues to face significant challenges,
we are encouraged by the increase in the number of net contracts
signed this quarter," Chairman and Chief Executive Robert Toll said
in a statement. "Although some of our markets are still stuck in
the mud, many are improving. While we have to work very hard for
our sales, it does feel as if the fence sitters are looking for
reasons to jump in on the side of buying. Price is no longer the
overwhelmingly dominant factor."
The order price of $535,000 declined 8% year-over-year, beating
Wachovia's $509,000 estimate. Unlike its peers, Toll has so far
avoided dramatic price declines, but this shows some cuts are
necessary. The results indicated fewer buyers are walking away. The
cancellation rate came in at 8.5%, the lowest number reported in
the sector since at least 2006, according to JP Morgan. For the
first quarter, the sector's average was about 25%.
Home builders have been slammed the past few years, and lower
consumer confidence for big-ticket items and rising unemployment
has further hurt the industry and led to a surge in loan
delinquencies and defaults. Still, Toll Brothers, known for its
strong land-picking ability, has held up better than many of its
peers.
Not all of the news, released before the market opened, was news
to brag about: Building revenue fell 42% from a year earlier as the
housing market continued to sag. Revenue for the three months ended
July 31 fell to $461.3 million from $796.7 million a year
earlier.
The company's backlog at the end of the third quarter was about
1,626 units, down 37% from a year earlier. In dollar terms, it fell
47% to $930.7 million.
The builder ended the third quarter with about $1.65 billion in
cash, compared with $1.96 billion at the end of the second
quarter.
The company also said it estimates pretax write-downs related to
operating communities, land and land options and joint ventures in
the third quarter to be between $90 million and $160 million.
Included in the impairments are "significant" write-downs on
certain land parcels targeted for disposition, it said.
Toll Brothers said it expects to record a deferred tax asset
valuation allowance against a substantial majority of its deferred
tax asset in the third quarter of its fiscal 2009.
Chief Financial Officer Joel Rassman said the company retired
$295 million of public debt in the third quarter and it currently
has no public debt maturing through its fiscal year 2011. It
expects to have under $50 million maturing in its fiscal 2012.
The company plans to detail its full third-quarter results on
Aug. 27.
Toll was recently up 11.1% at $22.76, making it by far the
sector's biggest gainer. Beazer Homes USA Inc. (BZH) added 7.7%,
Lennar Corp. (LEN) is up 4.7%. The Dow Jones US Home Construction
Index is 4.55% higher.
-Dawn Wotapka; Dow Jones Newswires; 212-416-2193;
dawn.wotapka@dowjones.com
(Kerry Grace Benn contributed to this report)