Toll Brothers (NYSE: TOL) this morning reported a net loss of $81.8 million($0.52 per diluted share) for the fourth quarter of fiscal 2007 and net income of $35.7% for entire fiscal year. The results beat the Wall Street consensus of a loss of $0.77 per diluted share but represented the company's first quarterly loss after 85 consecutive profitable quarters.
The loss was due primarily to pre-tax write-downs of $314.9 million, of which $242.9 million was related to operating communities and owned land,$59.2 million to unconsolidated entities in which the company has an investment, and $12.8 million to optioned land. Fourth-quarter earnings, minus the write downs, were down 52% from the same period in 2006.
Revenues, derived almost exclusively from home building, for the quarter fell 35% from the same period last year to $1.17 billion. Revenues from land sales totaled $2.0 million in the quarter, compared to just $300,000 in last year's fourth quarter.
For the fiscal year, total revenues of $4.65 billion decreased 24% from $6.12 billion in 2006. Home building revenues for the fiscal year totaled $4.64 billion, down 24% from 2006, and revenues from land sales totaled$11.9 million in fiscal 2007 compared to $8.2 million in 2006.
Net income for fiscal 2007, ended Oct. 31, was $35.7 million ($0.22 per diluted share) compared to $687.2 million ($4.17 per diluted share) in fiscal 2006. Pre-tax write-downs and goodwill impairments totaled $687.7 million in fiscal 2007, with $581.6 million attributable to operating communities and owned land, $59.2 million to unconsolidated entities in which the Company has an investment, and $37.9 million to optioned land.Total write-downs in fiscal 2006 were $152.0 million.
As previously reported by the company, gross contracts were off 33% to 1,073 in the fourth quarter, with revenue off 38% to $693.7 million. The company's cancellation rate rose to 38.9% during the quarter, a high for the current housing downturn. As a percentage of beginning-quarter backlog, FY 2007's fourth quarter cancellation rate was 8.3% compared to 6.0%, 6.5% and 6.7% in the third, second and first quarters of fiscal 2007.
Toll's fiscal year-end backlog of $2.85 billion decreased 36% from FY 2006's fiscal-year-end backlog of $4.49 billion. In addition, at 2007's fiscal-year-end, unconsolidated entities in which the Company had an interest had a backlog of $79.3 million.
Fourth-quarter net contracts were 656 units, worth approximately $365.2 million, down 35% in units and 48% in dollars, compared to last year's fourth quarter. Unconsolidated entities in which Toll had an interest signed contracts of approximately $20.0 million. For the fiscal year, net contracts totaled $3.01 billion, down 33% from fiscal 2006. Unconsolidated entities in which the Company had an interest had signed contracts of approximately $117.4 million.
"By many measures, fiscal 2007 was the most challenging of the forty years that Toll Brothers has been in business," said Robert I. Toll, Toll 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 twenty-second consecutive year of profitability. Stockholders' Equity grew to $3.53 billion at FYE 2007. "
Joel H. Rassman, Toll CFO, said the company could not at this time provide earnings guidance for 2008, but he said the company expected it will deliver between 3,900 and 5,100 homes in FY 2008 at an average delivered price of between $630,000 and $650,000 per home. SG& is expected to increase, he said.
Said Toll, "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...It's not a matter of if, but a matter of when, this oversupply is absorbed. Then we shall return to better times."
In a research note to investors, Carl Reichardt, home building analyst at Wachovia Securities, took a mixed view of the Toll results. "Better-than-expected performance driven by lower impairments and margins this quarter appear offset by the worse-than-expected '08 guidance. The balance sheet remians relatively strong, but Toll's land position remains high (owned lots of 36,000 on '08 estimated absorption midepoint of 4,500 equals 8 years of land assuming deliveries are flat) and can ratres are worsening as the forzen resale market impacts the ability of customer base to sell their existing homes."