Toll Brothers, Inc., Horsham, Pa. (NYSE:TOL) on Wednesday reported net income of $3.4 million, or $0.02 per share, for its fiscal first quarter of 2011 ended Jan. 31. The gain, which compared to a first-quarter 2010 net loss of$0.25 per share, included $25.1 million in inventory and joint-venture write downs and included a net tax benefit of $20.4 million, compared to a $33.4 million in impairments and a $16.0 million net tax benefit in last year's first quarter.

The performance was driven by better-than-expected sales, orders and margins as well as lower expenses. The gain eclipsed the consensus analyst expectation of a loss of 7 cents per share. On a pre-tax basis, minus charges and the tax benefit, the company generated $8.1 million in profit.

Toll Shares were up nearly 2.5% in pre-market trading Wednesday before settling back to a gain of 2% by mid morning.

Revenues were up 2% to $334.1 million on a 4% drop in deliveries to 570 units. The average delivery price of $586,000 was up 7% from the same period last year.

New orders rose 4% to 548 homes and new order dollars were up 5% to $307.2 million as the average selling price increased by 1% to $560,000, all compared to first quarter, 2010. The cancellation rate was as 5.7%, down from 8.8% in the previous quarter and 6.7% in the prior-year quarter.

Net signed contracts per community came in at 2.81, up 7% from 2.63 units in last year's quarter.

Toll ended the first quarter with 200 selling communities, up from 190 a year earlier, and said it expects the count to rise to between 215 and 225 by the end of the 2011 fiscal year.

Backlog at quarter's end was up 1% to 1,472 homes with an aggregate value of$825.2 million, a decrease of 2% compared to first quarter, 2010.

The company added 1,935 lots worth approximately $132 million during the quarter, raising the lot count to 35,700 owned or optioned (30,800 owned) from 31,700 lots one year earlier.

Gross margin, excluding interest and write-downs, improved to 22.6% from a revised 18.3%. SG&A fell from $67.3 million in last year's quarter to$61.2 million this year.

Joint ventures delivered homes with an aggregate value of $79 million during the quarter, up from $16.0 million in the first quarter of fiscal 2010.

Toll ended the first quarter with $1.10 billion in cash and marketable securities compared to $1.24 billion at the end of fiscal 2010 and $1.75 billion at the close of the comparable quarter last year. It had $797.5 million available under its 12-bank credit facility, which matures in October 2014.

The company was carrying $1.544 billion in long-term debt at quarter's end, flat with the same time last year. Net-debt-to-capital was 17.6%, up from 13.6% at the close of fiscal 2010 and 10.8% at the end of last year's quarter.

Toll said it currently estimates it will deliver between 2,200 and 2,800 homes this fiscal year with an average delivered price between $540,000 and $565,000 per home.

"In many places the market appears to be improving," said Douglas C.Yearley, Jr., Toll CEO. "These include the metro Washington, D.C.-to-metro Boston corridor, especially our metro New York City urban projects, as well as Texas. Combined, these markets represent almost 70% of our backlog."

"The industry needs to string a few good quarters together to create confidence," said Robert I. Toll, executive chairman. Improved confidence will pull customers off the fence and into the market, creating volume and pricing power. We are cautiously optimistic as we head into the Spring selling season with the emphasis on 'cautious.'"

He continued, "During the past few years the industry has, naturally, put very little ground through the approval process. We believe demand is increasing somewhat in certain markets, and that eventually, this demand will bump up against constrained supply. When this happens, we foresee happier days ahead for those home building companies with reputations intact and the capital and home sites to meet that demand."

Analysts were impressed. Michael Rehaut at J.P. Morgan wrote, "We are encouraged by today¹s results given the company¹s order growth, solid gross margin improvement and TOL's positive market commentary." Buck Horne at Raymond James said he thought the results "showed emerging signs of positive momentum."

"Despite our more cautious stance on the upcoming selling season generally, we expect Toll to post year-over-year order growth for the next few quarters, given: 1) rising community counts; 2) the lesser benefit realized from the '10 tax credit given its high-end focus; & 3) the company's geographic concentration in the better performing NE/Mid-Atlantic markets,"said David Goldberg at UBS in his research note.