Toll Brothers Reports First Ever Quarterly Loss

Toll Brothers Thursday reported a smaller-than-expected quarterly loss, as a charge for the reduced value of its land came in at the lower end of the company's forecast.

Toll Brothers
Toll Brothers

With $900 million in cash and more than $1.2 billion available under its bank credit facility, Toll ended the quarter better positioned than its competitors to weather the worst U.S. housing downturn in recent times, analysts said.

Toll's shares soared 5.8 percent on its quarterly performance as well as hopes that the jammed credit markets may loosen up soon.

The Bush Administration and some presidential candidates are proposing plans that they say could help some homeowners avoid foreclosure and mitigate the credit crisis.

Home-building shares rose 8 percent, according to the benchmark Dow Jones U.S. Home Construction Index.

"The Toll numbers were somewhere in line to better than people expected," Agency Trading Group senior research analyst Alex Barron said. "The Bank of England cut their rates for the first time in two years. If other banks are starting to cut rates, that's going to help -- at least in the short term -- unfreeze the credit crunch."

Toll posted a loss of $81.8 million, or 52 cents a share, for the fourth quarter, ended on Oct. 31, compared with a year-earlier profit of $173.8 million, or $1.07 a share.

Analysts had been prepared for a loss of 79 cents a share, including write-downs, according to Reuters Estimates.

The results in the latest quarter included noncash pretax write-downs of $314.9 million for developments open for sale, land and land options. Last month, Toll had estimated the write-downs at $250 million to $450 million.

Excluding the write-downs, the Horsham, Pennsylvania-based home builder posted a profit of 72 cents per share compared with $1.49 per share last year.

George Widman

Toll, whose loss was the first in its 21 years as a public company, forecast a sales decline for its new fiscal year but did not issue an earnings outlook for the period because of uncertainty in the housing market.

Shedding Land

"By many measures, fiscal 2007 was the most challenging of the 40 years that Toll Brothers has been in business," Chief Executive Robert Toll said in a statement.

Toll, like other home builders, has been shedding land holdings, cutting debt and hoarding cash to shore up its balance sheet to weather the downturn.

So far, Toll has reduced the number of building lots it controls by 35 percent to 59,300 and developments to 315 from 325. It expects to cut that number to 300 by October 2008.

Last week, Lennar said it had sold 11,000 lots into a joint venture it formed with Morgan Stanley Real Estate, raising $525 million. Last month, D.R. Horton agreed to sell 20,000 lots, raising about $70 million.

Orders for new homes were down 33 percent at 1,073 in the fourth quarter, Toll Brothers said. The value of the contracts fell 38 percent to $693.7 million.

Prospective buyers, meanwhile, canceled contracts at a rate of 38.9 percent, up from 36.7 percent in the year-earlier quarter.

After canceled orders, net new contracts fell 35 percent to 656 homes -- a decline much steeper than the mid-20s percentage rate of the two prior quarters. The contracts' value dropped 48 percent to $365.2 million.

For fiscal 2008, the company said sales would decline and be in the range of 3,900 to 5,100 homes at an average price of $630,000 to $650,000.

Its cost of sales would likely be higher because of rising incentives, the company said.

Toll shares were up $1.21 at $21.93 in afternoon trading on the New York Stock Exchange.

At Wednesday's close, the stock was down 36 percent year to date, while the benchmark Dow Jones U.S. Home Construction Index had fallen 58 percent.