Toll Brothers' Profits Drop 67%
Amid Cancellations, Fewer Orders

Luxury-home builder Toll Brothers Inc. reported a 67% drop in its fiscal first-quarter profit as it took a large write-down and impairment charge amid a continually weak housing market.

The company also trimmed its full-year earnings outlook and again lowered its estimate for home deliveries in 2007, based on the fewer orders in the first quarter and the higher-than-normal rate of cancellations. The builder's earnings forecast assumes write-downs of $60 million in the last three quarters of fiscal 2007, although it warns the actual number could be significantly higher or lower.

For the quarter ended Jan. 31, the Horsham, Pa., company earned $54.3 million, or 33 cents a share, down from $163.9 million, or 98 cents a share, a year earlier. The latest results included write-downs of $59 million, or 36 cents a share, and a goodwill-impairment charge of three cents a share, related to the company's 1999 acquisition of the Silverman Companies in Detroit. Revenue for the quarter, as the builder forecast earlier this month, fell 19% to $1.09 billion.

A survey of analysts by Thomson Financial produced an average estimate of 29 cents a share for the first quarter.

"There are too many soft markets at this stage of the selling season to call a general upturn in the new home market," said Chairman and Chief Executive Robert Toll in a statement. "Demand varies greatly from week to week in individual markets."

The housing sector has been struggling with an inventory glut, a surge in cancellations from jittery buyers and a slump in demand, forcing most builders to slash prices and offer other incentives to move sales.

Earlier this month, Toll Brothers said it expected write-downs of at least $60 million and possibly as high as $160 million or more in the fiscal first quarter. 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 parcels.

Toll's net orders totaled 1,027 units in the quarter, 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.

Toll Brothers expects to deliver between 6,000 and 7,000 homes in 2007, and to produce total home-building revenue of between $4.2 billion and $4.96 billion. The builder previously expected to deliver between 6,300 and 7,300 homes in the fiscal year, which was a ratcheted-down forecast from November.

For the fiscal year, Toll Brothers projects net income of between $240 million and $305 million, or $1.46 to $1.85 a share. Earlier, earnings were projected at $260 million to $340 million, or $1.58 to $2.08 a share, down sharply from fiscal 2006 earnings of $4.17 a share.

In commenting on the outlook of the housing market, Robert Toll said the metro New York City high-rise market "offers a glimpse of what one might expect when consumer confidence rebounds." He said while the market experienced some softness in the second half of 2006 due to consumer concern about the direction of home prices, this concern appears to have dramatically reversed itself in the last month.

"We believe that pent-up demand is building in many markets as potential buyers bide their time until they are confident prices have firmed," he said.

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