It appears that no one is exempt from the turmoil in the housing industry. Horsham, Pa.-based Toll Brothers is reporting its first quarterly loss in its 21 years as a publicly traded company--a net loss of $81.8 million for the quarter compared to a profit of $173.8 million in the same quarter last year. The loss includes $314.9 million in pretax write downs.
During the company's fourth quarter, which ended on Oct. 31, it signed 1,073 contracts, a 33 percent decline from the 1,595 signed last year. Current quarter cancellations totaled 417 units (38.9 percent), compared to 585 units (36.7 percent) in fourth quarter of 2006.
The builder also revealed its fiscal year 2007 earnings on Thursday, and although the fourth quarter was a painful one for the builder, the company was able to finish the fiscal year with a profit.
"By many measures, fiscal 2007 was the most challenging of the 40 years that Toll Brothers has been in business," said Robert I. Toll, chairman and CEO. "1974 was perhaps rougher, but the difficult times only lasted one year. Confronted with this extremely difficult environment, our team still produced revenues of $4.6 billion and net income of $35.7 million, which was our 22 consecutive year of profitability."
"However, since going public in 1986, we've reported our first quarterly loss after 85 consecutive profitable quarters," Toll continued. "The loss was driven by $315 million of [non-cash] pre-tax inventory-related impairments and related write-downs, which resulted in a fourth-quarter net loss of $0.52 per share. Before write-downs, fourth-quarter net income was a positive $118 million, or $0.72 per share. However the fact that we took such substantial write-downs this quarter, on top of the nearly $488 million of pre-tax inventory-related write-downs in the previous four quarters, reflects the market's continued weakness."
Looking forward, Toll Brothers' CFO Joel H. Rassman said the builder expects to deliver between 3,900 and 5,100 homes in fiscal 2008 at around $630,000 to $650,000 per home. "We believe that, as a result of continuing incentives and slower sales per community, our cost of sales as a percent of revenues, before taking into account write-downs, will be higher in [fiscal year] 2008 than in [fiscal year] 2007."
"We believe that motivated sellers, excess supply, and low interest rates make now an attractive time to buy a home, but weak consumer confidence continues to buck these positives," Toll adds. "Broader concerns about the nation's economy have magnified worries about potential price declines in the housing market."
In a note to investors, Carl Reichardt, a Wachovia Capital Markets senior equity research analyst, said Toll Brothers' "better-than-expected performance driven by lower impairments and margins this quarter appear offset by the worse-than-expected '08 guidance."
"The balance sheet remains relatively strong," Reichardt continues. "However, [Toll Brothers'] land supply remains high and [cancellation] rates are worsening as the frozen resale market impacts the ability of [Toll Brothers'] higher-end customer base to sell their existing homes."
Toll Brothers was ranked No. 14 in the 2006 BUILDER 100.