Toll Brothers Profit Down 79%, but Stock Rises on Housing Data

Luxury homebuilder Toll Brothers said its fiscal second-quarter profit fell sharply and it remained uncomfortable giving an earnings forecast in the face of the contracting housing market.

However, Toll Brothers shares rose along with those of other homebuilders on Thursday after government data showed a better-than-expected increase in new home sales.

A Commerce Department report showed that new home sales rose 16.2% in April, which was the strongest gain in 14 years, although prices fell sharply as builders cut prices to attract buyers.

For the quarter ended April 30, Toll Brothers earnings fell to $36.7 million, or 22 cents a share, from $174.9 million, or $1.06 a share, in the same quarter a year ago.

Revenue fell nearly 19% to $1.17 billion from $1.44 billion a year ago.

The results fell short of analysts' estimates. According to a Thomson Financial survey, analysts were estimating earnings would be 25 cents a share, with sales of $1.12 billion.

Earlier this month, Toll Brothers had warned it would fall short of its forecast of 43 cents to 57 cents a share.

The value of signed contracts in the latest quarter dropped 25% to $1.17 billion from a year ago.

"Given the uncertainty surrounding sales paces, and market direction and, thus, the potential for and size of future impairments, we are not comfortable giving full earnings guidance at this time," Chief Financial Officer Joel Rassman said in a statement.

After-tax write-downs reduced earnings by $72.9 million, or 44 cents a share, up from $7.3 million, or 4 cents a share, in the same quarter a year ago.

Looking ahead, Toll said it expects to deliver between 6,100 and 6,900 homes in fiscal 2007 and produce total home building revenue of $4.26 billion to $4.88 billion for the full year.

For the third quarter ending July 31, the company expects to deliver between 1,400 and 1,800 homes and produce home building revenue of between $990 million and $1.28 billion last year.

"The results were bad, everyone knew they were going to be bad," said Eric Landry, an equity analyst at Morningstar, in an interview with Reuters.

For about a year, home construction has fallen off sharply on weakening demand and rising interest rates. This followed a long run-up in property values in many parts of the United States, as Americans took advantage of low interest rates and unconventional financing, like interest-only mortgages, to purchase larger and more luxurious homes.

"This is not a low-end type of phenomenon," Landry said of the slowdown. "The entire housing chain has been affected."

Analysts said much of the increase in April new home sales came in lower price tiers than Toll's market. The company sells homes worth around $700,000.

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