The first solid evidence that the improvement in new home sales has moved into the luxury segment emerged Wednesday as Toll Brothers (NYSE:TOL) reported a 42% rise in new orders and a 62% increase in dollar volume for its fiscal fourth quarter ended Oct. 31.
Shares of Toll surged on the news, up 16.4% on the session, closing at $21.41.
The Horsham, Pa.-based home builder on Wednesday reported preliminary results of net signed contracts on 765 units for a total dollar volume of $430.8 million, up 42% and 62% respectively from last year's fiscal fourth quarter. The increase came despite a 26% reduction in selling communities to 215 during the same period.
Significantly, sales per community rose 91% to 3.56 from the same period last year, and the cancellation rate fell to 6.9%, in line with pre-downturn norms and even with the rate in the fourth quarter of 2005. As a percentage of beginning quarter backlog, it was 3.5%.
Prices also held up. The value per unit of net contracts signed in the quarter came in at $563,000, up from $495,000 in the same quarter last year.The value of gross contracts signed fell to $562,000 from $583,000.
"Home buyers began to emerge from their bunkers in late March 2009 and the market continued to gain momentum up to Labor Day," said Robert I. Toll, chairman and CEO. "Since then demand has been volatile; this may be due in part to typical seasonality, but the more likely cause is concern about unemployment and the overall economy."
Still, Toll said, "We have definitely progressed from one year ago. The shock to the financial system in mid-September 2008 that shut down the capital markets appears to be mostly behind us. The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving; we sense that it is, though slowly and through choppy waters."
There is, however, more muck to slog through. Deliveries for the quarter were down 20% to 860 units with a dollar value of $486.6 million, down 30% from a year ago. Backlog at quarter end was down 25% to 1,531 units worth$874.8 million, down 34%.
Moreover, CFO Joel Rassman said the company expected to take between $50 million and $125 million in impairments and write-downs for the quarter when it reports financials on Dec. 3. On a brighter note, the company said it expects to realize an $150 million tax gain from deferred tax assets in 2010.
For the fiscal year, net signed contracts of approximately 2,450 units were down 16% and dollar volume was down 19% to $1.3 billion. Deliveries fell 37% to 2,965 and revenue from closings fell 44% to $1.76 billion, compared to the 2008 fiscal year.
Toll's joint ventures delivered homes with a value of approximately $11.8 million for the quarter and $47.2 million for the fiscal year, compared to$42.7 million and $104.7 million, respectively, in the comparable periods of fiscal 2008.
The company ended the quarter and the fiscal year with approximately 31,900 lots owned and optioned, down from 35,400 at the prior-quarter-end and approximately 39,800 at the end of the 2008 fiscal year. Lot count peaked at approximately 91,200 at the end of the 2006 second quarter.
At quarter's end, selling communities were down to 200 from 215 as the quarter began, down 38% from peak at the end of the 2007 second quarter. The company said it expects to maintain that level through 2010.
Since April, the company has issued $650 million face value of senior notes with a weighted average maturity of 9.1 years and retired $543 million in older notes. As of December 1, 2009, Toll will have $1.60 billion of public debt outstanding compared to $1.49 billion at December 1, 2008, and will have no public debt maturing before fiscal 2013.