Posted on 05/09/2007 7:23:42 AM PDT by Omega Man II
Toll Brothers Q2 Home Building Revenues Drop 19% Hammered By Poor Market Conditions; Withdraws FY07 Outlook -
Update
Wednesday, May 09, 2007; Posted: 08:10 AM
(RTTNews) - Offering little hope for a 'glimmer of rebound' in the housing market in near term, Luxury homes builder Toll Brothers, Inc. (TOL | charts | news | PowerRating) on Wednesday, before the bell, reported a 19% fall in home building revenues for its second quarter. The company experienced a 25% drop in net-signed contracts and a 32% plunge in backlog during the quarter. The company's cancellation rate was higher from last year, although it demonstrated a reduction on a sequential basis. Toll Brothers, based in Horsham, Pennsylvania, said it expects to report a profit for the second quarter. However, the company warned that it does not expect to achieve the most recently provided quarterly and annual guidance, given the current market conditions and bumpy roads ahead.
The company's home building revenues for the quarter was approximately $1.17 billion, compared to $1.44 billion in the second quarter of 2006. Including revenues from unconsolidated entities, Toll Brothers' home building revenues dropped to $1.19 billion from $1.47 billion a year ago. The company's revenues from land sales totaled approximately $2.0 million, down from $2.1 million in the same quarter of last year. On average, six analysts polled by First Call/Thomson Financial expected quarterly revenues of $1.13 billion.
For the sequentially preceding quarter, Toll Brothers reported revenues of $1.09 billion and traditional home sales of $1.05 billion. The company's land sales for the first quarter reached $3.39 million.
As per the company, it signed net contracts of approximately $1.17 billion in the second quarter, a 25% fall from $1.56 billion in the prior-year quarter. The unconsolidated entities, in which the company had an interest, signed contracts of about $34.6 million for the quarter.
Toll Brothers also witnessed a 14% drop in second-quarter gross contracts to 2,031 from 2,372 signed in the previous-year quarter. Cancellation rate for the quarter was 19%, compared to 9% a year earlier. Nevertheless, the company experienced an improvement in the cancellation rate, compared to 30% in the first quarter of 2007 and 37% in the fourth quarter of 2006. According to the company, about 70% of the cancellations in the recent second quarter were from contracts signed more than nine months ago.
Toll Brothers said its backlog plunged 32% at the end of the second quarter to approximately $4.15 billion from $6.07 billion a year ago. As of April 30, 2007, the unconsolidated entities had a backlog of approximately $46.4 million.
While commenting on the preliminary second-quarter results, Robert Toll, chairman and chief executive officer of Toll Brothers, said, "Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets." He also said that the company's traffic in the second quarter, on average, was flat on a gross basis, and down approximately 20% on a same store basis from last year.
Further, Toll Brothers experienced the adverse impact of problems in the sub-prime market as less than 2% of the company's buyers depend sub-prime loans. Issues in the sub-prime market, coupled with a lack of buyer confidence, blocked the turnaround, which was visible in early February.
Yet, "there are some bright spots", Toll said. According to him, conditions were better in New York City, Hoboken and Jersey City, Dutchess County, New York and southeastern Connecticut, metro Philadelphia, Raleigh, Dallas, Austin, and portions of Northern California.
For six months ended on April 30, 2007, Toll Brothers generated consolidated home building revenues of $2.26 billion, a 19% decline from $2.78 billion in the same period of last year. Including the unconsolidated entities, the company's total revenues came in at $2.29 billion, down from $2.86 billion a year ago. The company's revenues from land sales for the six-month period dropped to approximately $5.4 million from $6.8 million in the same period of fiscal 2006.
Toll Brothers said it net contracts reached approximately $1.92 billion in the six-month period, a 29% fall from $2.70 billion a year ago. The unconsolidated entities signed contracts of approximately $63.8 million for the period.
In the U.S. housing industry, Toll Brothers is not the sole builder destined to sail through the troubled waters and face challenges in the industry. Recent earnings results from other homebuilders show that they are also in the same vessel, struggling to weather the weakness in the housing market. On April 19, D.R. Horton (DHI | charts | news | PowerRating) said its second-quarter earnings declined to $51.7 million from $352.8 million in the year-ago quarter. On a per share basis, the company's earnings were $0.16, compared to $1.11 last year. The company's homebuilding revenues declined 25.7% to $2.6 billion from $3.5 billion in the second quarter of fiscal year 2006.
Pulte Homes, Inc. (PHM | charts | news | PowerRating), the second largest homebuilder in the U.S., said on April 25 that it incurred a net loss of $85.7 million or $0.33 per share for its first quarter, compared to a net income of $262.6 million or $1.01 per share for the year-ago quarter. The Bloomfield Hills, Michigan-based company's total revenue for the quarter dropped 37% to $1.67 billion from $2.96 billion last year.
Another peer, Hovnanian Enterprises, Inc. (HOV | charts | news | PowerRating) said in early May that it expects to report a wider loss for its second quarter. The Red Bank, New Jersey-based company also reported a 30% fall in home deliveries and a 21% decline in net contracts. Hovnanian expects to announce its second-quarter results on May 31, 2007.
With the continuing slump in the housing market, Toll Brothers estimates that its pre-tax write-downs for the second quarter will be between $90 million and $130 million. The company also expects to report a profit for the second quarter, even if the write-downs reach the higher end of the guidance range. Additionally, Toll Brothers said it no longer expects to achieve the outlook provided on February 22, 2007.
As per the guidance announced on February 22, the company was expecting fiscal 2007 net income in the range of $240 million - $305 million or $1.46 - $1.85 per share. The company also projected total home building revenues between $4.20 billion and $4.96 billion for fiscal 2007. At that time, the company lowered its estimate for home deliveries to 6,000 - 7,000 from 6,300 - 7,300 expected previously.
TOL closed Tuesday's trade at $29.21, up $0.27, on a volume of 2.43 million share
“They’re not making any more land.” “Real estate only goes up, never down.” “This time it is different!” “No, that 2 bedroom condo in a slum part of down is not $600,000 - it is $1200 a month!”
Ok then, THIS must be the bottom. CNBC tells me so every day, they must have been right at least one of those times.
It’s very simple. When interest rates went down, a lot of people changed their time tables and bought with the low rates. Rates are up, and a bunch of people have already moved, they aren’t going to move or build again.
It is like when an auto maker runs a huge sale, like GM did right after 9/11, and then wonder about the slump that hits nine months later.
LOL quite the understatement:
D.R. Horton said its second-quarter earnings declined to $51.7 million from $352.8 million in the year-ago quarter
Pulte Homes, Inc., the second largest homebuilder in the U.S., said on April 25 that it incurred a net loss of $85.7 million or $0.33 per share for its first quarter
Hovnanian Enterprises, Inc. said in early May that it expects to report a wider loss for its second quarter
I was referring to cost (labor,land,materials,etc.) and sale price.
That sentence was obviously missing a word:
Further, Toll Brothers didn't experience the adverse impact of problems in the sub-prime market as less than 2% of the company's buyers depend sub-prime loans.
Quarter-to-quarter comparisons are inappropriate to the very seasonal homebuilding industry.
Just a side note - as an opera lover I am very interested in the financial health of Toll Brothers. When Texaco dropped its 60+ year of sponsorship of saturday radio broadcast performances from the MET (which was, of course, its right), Toll Brothers stepped up and offered sponsorship so that those broadcasts could continue. The MET broadcasts, IMHO, add to the culture of the country and are a national cultural treasure. So, I feel a great warmth to this company.
Their predatory building practices (taking huge tracks of rural land for mega-developments while trashing the town involved) has put-off a large part of the public, too.
Are you getting worried that there may not be a housing disaster?
Further, Toll Brothers didn't experience the adverse impact of problems in the sub-prime market as less than 2% of the company's buyers depend sub-prime loans.
Actually, it should have been written as:
"Toll Brothers experienced the adverse impact of problems in the sub-prime market despite less than 2% of the company's buyers depending on sub-prime loans."
The CEO made this clear in his statement: "the impact of stricter lending standards arising from problems in the subprime market is negatively affecting affordability at lower price points ... This, in turn, can impact the entire 'housing food chain,' including some of our potential customers' ability to sell their existing homes," he added.
Nope. And I ain't gonna get sucked into the "debate".
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