Toll Loss Narrows, but Warns on Revenue

Toll Brothers, the largest U.S. luxury home builder, said its quarterly loss narrowed slightly as it wrote down less inventory, but warned that its 2009 revenue will be significantly below that of 2008 as the protracted U.S. housing slump continues.

CNBC.com

Toll , whose shares fell more than 3 percent in premarket trade, said its net loss shrank to $78.8 million, or 49 cents per share, in the fourth quarter ended on Oct. 31 versus $81.8 million, or 52 cents, a year earlier. Analysts were expecting a loss of 47 cents a share.

Pretax write-downs fell to $175.9 million from $314.9 million. Revenue tumbled to $698.9 million from $1.17 billion.

Excluding writedowns, the company said it earned $38.5 million, or 23 cents per share, down from $118.2 million, or 72 cents per share.

Chief Financial Officer Joel Rassman warned that with 2008 contracts and backlog down 47 percent and 54 percent, respectively, the company expects revenues in fiscal 2009 "will be significantly below those of FY 2008."

The company said that because of the difficult economic environment, it was not providing any earnings forecast.

Like other homebuilders, Toll has been floundering amid a nationwide housing slump rooted in risky mortgage practices that fueled the 2002-2006 boom years, but backfired when they created a wave of mortgage defaults and foreclosures that drove down prices and devalued land.

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Then, more recently, the implosion of the financial sector and the decline in the stock market combined to weaken consumer confidence and erode demand for new homes still further.

"The most frustrating aspect of FY 2008 was that the longer it went, the worse it got—this, no doubt, was due largely to the financial crisis which deepened over the course of the year," Chief Executive Robert Toll said in a statement.

Throughout the downturn, builders have shifted their focus from profit and growth to cash generation and balance sheet strength by ramping up incentives, selling land and paying off debt when possible.

Toll said it had ended its fiscal year with more than $1.63 billion in cash and more than $1.32 billion available under a 32-bank credit facility that matures in March 2011.

It said it has no public debt maturing until the second fiscal quarter of 2011, adding that its net debt-to-capital ratio was 12.6 percent at the end of October, its lowest level ever and down from 26.8 percent a year earlier.

Toll ended 2008 with about 39,000 lots compared with about 59,250 at the end of 2007.

Silver Lining?

But Robert Toll also said the company was in a good position to take advantage of opportunities it believes will arise from the industry's distress.

"We are beginning to see some deals that are appealing in terms of quality but not price," he said.

Also, the downturn will reduce competition from its primary competition, small and mid-sized builders, who will find their access to capital increasingly constrained as the number of lenders willing to serve homebuilders shrinks.

Toll, one of the builders which has been most vocal in calling on the government to address broader economic problems by providing a stimulus to the housing market, called the decision right before Thanksgiving to pump hundreds of billions of dollars into the mortgage market a "positive first step."

"Perhaps this initiative, combined with already dramatically improved affordability, will be a catalyst to stimulate consumer demand, stop the decline in home prices and restore confidence in the new home market," he added.

Toll's shares were down about 3.2 percent at $18.62 during premarket trading.

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