Toll Brothers may have fallen short of turning its first profit since the downturn in its second quarter, losing $40.4 million, or $0.24 per share, close to analysts' consensus of a $0.23 per share loss. But it was able to log some other positive 'firsts.'
For the first quarter in four years, the company's second-quarter backlog was up 5% in odllars and 10% in units compared with the same quarter of 2009. And it was the first sequential quarterly increase in three years.
For the first time since the second quarter of 2006, the company ended the quarter with more lots controlled than the quarter before--33,600 lots versus 31,700.
And, while it wasn't a first, it certainly was a positive that signed sales contracts were up for the third consecutive quarter and exceeded the previous two years' same quarter totals. Gross signed contracts were up 17% in both dollars and units to 866 units compared with 743 in the same quarter of last year. And those numbers were achieved despite there being 21% fewer communities open this year. Toll sold 4.32 units per community, up 85% over last year's same quarter.
And the sales seem to be sticking better with a cancellation rate of 5.3% versus 221.7% in its fiscal year 2009 second quarter.
The company offered some sales guidance, estimating that it will deliver between 2,200 and 2,750 homes this year, with the average sales price ranging between $540,000 and $560,000 each.
'It appears our business has finally emerged from the tunnel and into a bit of daylight," CEO Robert I. Toll said during the earnings call with analysts.
Later, he quoted Winston Churchill: 'Now this is not the end, it is not even the beginning of the end, but it is perhaps the end of the beginning."
It perhaps may be the end of quarterly quotes from Bob Toll, 69, as he takes a step toward semi-retirement. On June 15, he will turn over the CEO title to Douglas C. Yearley Jr., a 20-year Toll veteran, while remaining executive chairman of the board.
Toll told analysts that he expects to still be part of major decisions involving hiring and land buying. 'I am looking forward to continuing to have fun in the building business for some time to come," he said.
But he's also looking forward to having more free time. For instance, he left the company's famously long Monday evening meeting this week at 9 p.m. rather than 11 p.m., and he straggled into the office at 9 a.m. Wednesday.
'I am not looking forward to retirement," he said. 'But I am looking forward to a cutback in my time."
It was a belief that the worst is over that led Toll to begin transitioning into retirement. That same belief, along with some land sales that Toll dubbed bargains, has put the builder back into the land market, spending $143 million on land in its second quarter.
'We are seeing better land deals from financial institutions and traditional sellers than last year," said Yearley. Because Toll often works as a developer of its own land, it has the expertise to buy land in a rawer state than many large production builders have favored of late.
'Our land development expertise enables us to pursue earlier-stage, complex opportunities that many builders avoid," Yearley said.
And the company is looking for more, Yearley said during the call. 'Our land teams are hunting for ground in all of our markets," he said. 'We are well-positioned for future growth."
The new land, plus pulling some communities out of mothballs, is allowing Toll to boost its number of communities from the dwindled 190 back up to an expected 200 to 210 by the end of 2010. It had 240 communities at the end of the second quarter of last year.
The land buying and extinguishing of some debt has lowered the company's cash balance from $1.75 billion a quarter ago to a still substantial $1.55 billion. That compares with $1.96 billion a year ago.
Analyst Ivy Zelman of Zelman and Associates questioned Toll about why he doesn't use some of the company's cash to buy back company stock.
'I have to smile at the question because for 10 years [CFO] Joel [Rassman] and I have battled one another on this issue, and strangely I think we have switched positions after a 10-year battle," Toll told Zelman.
Rassman jumped in and said he thinks the company needs its cash for growth.
'We expect to be up to 8,000 units again," Rassman added.
Zelman made a case for buying company stock instead of more land since Toll still has quite a lot of land on its books. Toll, in amusement, cut the conversation short.
'Perhaps I should have chosen you instead of Doug" as the new CEO, he quipped.
Another analyst questioned why Toll, unlike other builders, has not set a predicted time for a return to profitability.
'We are not projecting going forward," Rassman said. 'We tend to trail [other builders] because we sell first and deliver later. So we'll trail a little."