Toll CEO Sees Uptick
Behind Grim Numbers

Luxury-home builder Toll Brothers Inc. saw orders plunge 33% in its fiscal first quarter, and it expects to take larger than forecast write-downs when it posts quarterly results this month as it struggles with a weak housing market.

However, Chairman and Chief Executive Robert Toll said the company has seen some signs of an uptick in demand in certain markets in the past month and reported that the number of cancellations has started to decline.

"We're at the beginning of the comeback trail -- we're doing better, but I don't want to get excited about it yet," Mr. Toll said, referring to markets where he has seen some improvement. "They're getting better -- not just seasonally, but on a year-over-year basis, which gives us some encouragement."

The Horsham, Pa., builder's net orders totaled 1,027 units in the quarter ended Jan. 31, down 33% from 1,544 units a year earlier. Jittery home buyers canceling home purchases caused much of the decline. However, the cancellation rate was 29.8%, an improvement from the 36.9% cancellation rate in the fiscal fourth quarter.

"It appears that the pace of cancellations is starting to abate," Mr. Toll said. "However, we are still well above the company's historical average of about 7%."

Mr. Toll attributed the cancellations to buyers encountering financial issues related to mortgages, buyers not being able to sell an existing homes and to family or medical reasons. "It's amazing how many people get sick when prices fall," Mr. Toll quipped.

Mr. Toll said land-related write-downs will "significantly exceed the estimates in the guidance we provided in December 2006." He now expects write-downs of at least $60 million and possibly $160 million or more in the fiscal first quarter. This is substantially higher than the $60 million in write-downs he had been projecting for the fiscal year. In general, builders take write-downs on land and land options when crumbling market conditions cause land and home values to fall so sharply that it is no longer financially viable for a builder to construct homes on those land parcels.

The company's home-building revenue totaled $1.09 billion for the fiscal first quarter, down 19% from a year earlier.

Mr. Toll said demand is improving in certain markets, such as Hoboken, N.J., Manhattan and Brooklyn. However, he has yet to see any stabilization in other markets, such as Detroit and Minneapolis.

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