Toll Brothers Braces for Building Revenue Drop

Toll Brothers, the largest U.S. luxury home builder, said Tuesday the spring selling season was weak and it expects to report a 30 percent drop in quarterly home-building revenue.

Preliminary results show home-building revenue of $817.9 million for the fiscal second quarter that ended April 30, down from $1.17 billion a year earlier.

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Analysts had expected sales of $762.0 million, according to Reuters Estimates.

"The just-completed spring selling season was quite weak in most markets as buyers remained on the sidelines," Chief Executive Robert Toll said in a statement.

"We believe there is significant pent-up demand which is growing." He described it as "clearly a buyers' market, but buyers can only take advantage of it if they buy; sooner or later they will, but unfortunately we can't predict when." The U.S. housing market is in its worst downturn in decades, with home prices falling and mortgage defaults climbing.

To navigate the downturn, U.S. home builders have shifted their focus to survival, turning excess land and inventory accumulated during the boom times of 2002 to 2006 into cash.

Toll Brothers ended the second quarter with $1.23 billion in cash and $1.27 billion available under its bank credit facility.

It said it signed contracts for 929 homes, net of cancellations, during the quarter, down 44 percent from a year earlier.

That translated into a 58 percent decline to $496.4 million.

The company estimated pretax write-downs in the quarter would be $225 million to $375 million.

"The detriment from elevated impairments is offset by better future profitability," UBS analyst David Goldberg said in a research note.

"The company's land is better positioned & will retain more of its value through the downturn." UBS reduced its 2008 estimates to a loss of 75 cents per share, from an expected profit, but kept its price target at $27 a share.

The Horsham, Pennsylvania-based company will announce final quarterly results on June 3.

Toll said the average price per unit of net contracts signed was $534,000, down from $710,000 a year earlier, reflecting higher incentives, more homes sold in low-priced communities like those aimed at older adults, and fewer sales in high-priced markets such as California.

Prices were also down compared with each of the prior two quarters.

The second-quarter cancellation rate was 24.9 percent, below the rate in the prior two quarters, but up from a year earlier.

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