Toll Brothers' Net Falls 19%;
Outlook for Year Is Reduced
Toll Brothers Inc. said Tuesday its fiscal third-quarter profit fell 19% as a downturn in the housing market hurt revenue and caused the luxury home builder to reduce the number of lots it controls.
Still, Toll shares moved higher in morning trading, as investors were apparently expecting a more bearish report.
Toll's results come amid more indications the housing market is cooling. Last week the National Association of Home Builders reported confidence among home builders hit a 15-year low. The University of Michigan's preliminary reading on August consumer sentiment showed households themselves view this as the worst time to be shopping for a home since 1990, a recessionary period that led to nasty housing declines in places like Boston and California.
Meanwhile, rising home inventories and shaky sales have put pressure on housing prices. Tomorrow's report on existing-home sales from the National Association of Realtors and Thursday's report on new-home sales from the Commerce Department could show that in July home prices had their first decline from year-earlier levels since 1995.
In its report Tuesday, Toll said for the quarter ended July 31, net income was $174.6 million, or $1.07 a share, compared with $215.5 million, or $1.27 a share, in the previous third quarter. Revenue was $1.53 billion, down 1% from $1.55 billion a year ago.
On average, analysts surveyed by Thomson Financial forecast earnings per share of $1.04 and sales of $1.54 billion.
The Horsham, Pa., company reduced the number of lots it now controls to about 82,900, down from 91,200 at the end of the second quarter. Toll Brothers said it will continue to reevaluate the lots it controls and may drop options to buy land it no longer considers attractive.
The latest quarter includes $23.9 million in pretax write-downs, which amounts to nine cents a share. Write-downs in the year-ago quarter amounted to only $1.2 million. Most of the write-downs in the latest quarter were for lots under option, predominantly in California and Florida.
"We were most pleased to see lot count actually shrink" from the preceding quarter," Lehman Brothers analyst Steven Fockens wrote in a research note.
The company pegged fourth-quarter net income at between $218 million and $250 million, or $1.33 to $1.53 a share, while 2006 net income is expected at between $727 million and $763 million, or $4.41 to $4.63 a share. Previously, the company forecast full-year per-share earnings of $4.69 to $5.16.
Robert I. Toll, Toll Brothers' chairman and chief executive officer, tied the housing market's "continuing malaise" to an oversupply of houses and a drop in confidence. He said speculative buyers from recent years are now selling and builders are offering large incentives and discounts on speculative homes.
"This overhang in supply and the aggressive discounting of many builders is undermining consumer confidence and keeping buyers on the sidelines as they continue to worry about the direction of home prices," Mr. Toll said in a prepared statement.
In composite trading on the New York Stock Exchange, Toll shares were ahead 77 cents, or 3.1%, at $25.54.
--The Associated Press contributed to this article.
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