Toll Brothers Inc., Horsham, Pa. (NYSE:TOL) on Thursday morning reported net income of $50.5 million ($0.30 per share) for its fiscal fourth quarter ended Oct. 31, up from a loss of $111.4 million (-$0.68 per share) in the comparable quarter of 2009.
The profit included a net tax benefit of $59.9 million based primarily on a reversal of valuation allowances taken, compared to a $4.7 million net tax expense in FY 2009's fourth quarter, and also included $27 million in land impairment charges. Additionally, results included an $11 million reversal of accruals related to joint ventures that are no longer necessary.
On a pre-tax basis, the company reported a loss of $9.5 million (-$0.08 per share), roughly in line with the consensus Wall Street expectation of a loss of seven cents per share. Shares of Toll were down trading down in the early going Thursday but had reversed to a gain of 1.8% shortly after 10 a.m.
Home building revenue dropped 17% from last year's quarter to $402.6 million as closings dropped 19% to 700 units.
New orders were down 27% both in terms of units, which came in at 558 units, and dollars, which ended the quarter at $315.3 million. The average price of net contracts signed was $565,000, down modestly from $571,000 in the previous quarter and up marginally from $563,000 in last year's quarter. The cancellation rate was 8.8%.
On a per-community basis, net signed contracts of 2.94 units for the quarter declined 17% from the prior-year-quarter average of 3.56 units but increased by 58% and 41% respectively, compared to FY 2008's average of 1.86 units and FY 2007's average of 2.08 units. All were significantly below Toll's historical fourth quarter per-community average, dating back to 1990, of 6 units per community.
At quarter's end, Toll had 195 selling communities, up from 190 at third-quarter end and 200 at the end of fiscal 2009. It said it expects to end fiscal 2011 with between 215 and 225 selling communities, compared to its peak of 325 communities at the end of second-quarter, 2007.
The company ended the quarter and the fiscal year with a backlog of 1,494 units, down 2% from the same time last year, worth $852.1 million, down 3% from last December.
During the quarter, Toll purchased 1,276 lots for $66.1 million. During the full fiscal year, it purchased 6,203 lots for $418.2 million. It ended the quarter and year with 34,900 lots owned and optioned, down from 35,800 sequentially due to the sale of non-core assets and up from 31,900 year-over-year and down from 91,200 at peak at the end of second quarter, 2006. Approximately 28,900 lots were owned, and approximately 10,500 lots, including those in backlog, were substantially improved.
Fourth-quarter gross margin improved to 13.9% from 0.8% in the comparable2009 quarter. SG&A was down 12.8% to $69.2 million.
For the full fiscal year, the company reported a net loss of $3.4 million(-$0.02 per share) compared to a net loss of $755.8 million (-$4.68 pershare) for fiscal 2009. Home-building revenues of $1.49 billion and 2,642 units declined 15% in dollars and 11% in units, and net signed contracts of$1.47 billion and 2,605 units increased 13% in dollars and 6% in units compared to the prior year.
During the quarter, Toll completed a new four-year unsecured $885 million bank credit facility, which, at fiscal yearend, had $799 million available for use and $86 million outstanding as letters of credit.
The company ended the quarter and the year with $1.24 billion of unrestricted cash and marketable securities compared to $1.64 billion the previous quarter. The decrease in cash was due primarily to the repayment of$341.8 million of debt, the restriction of $60.9 million to collateralize letters of credit remaining from the previous credit facility and other obligations, and the payment of $66.1 million for land purchases.
The net-debt-to-capital ratio was 13.6%, up from 11.5% at the end of the third-quarter 7.4% at the close of fiscal 2009.
For fiscal 2011, the company estimated it will deliver between 2,100 and 2,900 homes at an average delivered price between $540,000 and $565,000 per home, with a higher average price of delivered homes in the first quarter than in the final three quarters of the fiscal year due to geographic mix.It also said that due to the sale of 13 communities consisting of 787 lots for $18.3 million, a tax loss of $89.4 million was triggered, which will result in a tax benefit of $31.3 million. Toll estimated it will file for taxable losses from operations, abandonment of options and other taxable loss transactions for approximately $140 million in tax refunds relating to this year in fiscal 2011.
Douglas C. Yearley, Jr., Toll CEO, said, "2010 was another challenging year for our company and our industry as the persistent drag of high unemployment, reduced home equity, weak consumer confidence and frustration with the nation's economic and political climate outweighed the appeal of historic low interest rates and tremendous home affordability. Even though the unemployment rate among our buyers is about half that of the national average, many of our clients remain on the sidelines waiting for clearer signs that the economy is on the road to recovery." He added, "We continue to position ourselves for this recovery through the opportunistic and prudent purchase of land and the growth of our community count."
Robert I. Toll, executive chairman, stated: "This housing downturn is the longest and most severe since the Great Depression. However, we believe that the future for our firm and industry are bright. Over the past thirty years, single-family, multi-family and manufactured housing completions have averaged 1.683 million units per year. A recent Harvard University study projects similar demand in this new decade. Based on the very low housing production over the past few years, we believe that pent-up demand is building and will be released once the employment and economic picture improves and people regain confidence."
He continued, "The other major public builders are primarily focused on the lower-priced segment of the market. Our main competitors are small and mid-sized local and regional private builders. We believe we have competitive advantages over them in our brand, quality, access to capital and purchasing power. We, therefore, see opportunity for market share gains for Toll Brothers when the market recovers.
"The key word is 'when,'" said Toll.
In a research note, Wells Fargo analyst Carl Reichardt said, "Results appear roughly in-line with and demonstrate a continued weakness in the macro environment. However, guidance seems to imply a flat-to-worse demand environment in 2011 on a per community basis." He added, "Toll's balance sheet remains strong."
Stephen East at Ticonderoga Securities wrote, "We expected very little from this post-tax credit quarter, and we got it. Virtually every operating metric was just a bit below our expectations."