Toll Brothers, Inc. fourth quarter and fiscal year 2008 earnings came in right about where Wall Street expected them, reflecting a slight improvement over the fourth quarter of 2008 but falling way short of the profit the company made in 2007.
The loss was $78.8 million, or -$0.49 per share, vs. a consensus estimate among the 15 analysts surveyed of -$0.47. For the 2008 fiscal year, which ended Oct. 31., Toll lost $297.8 million, or -$1.88 per share, against a Wall Street expectation of -$1.85. The company made $35.7 million in fiscal 2007.
The quarterly loss included $175.9 million in pre-tax write downs, $106.2 million attributable to operating communities and owned land, $54.4 million to joint ventures, $12.1 million to optioned land and $3.2 million to goodwill impairments. For fiscal 2008, the loss included $848.9 million in pre-tax write downs, including $543.5 million for operating communities and owned land, $200.7 million for joint ventures, $101.5 million for optioned land and $3.2 million for goodwill impairments.
Toll previously reported a 41% decline in revenues for the quarter, its fiscal fourth, to $691 million as units in completed contract communities(closings) fell 34.6% to 1,079. Net signed contracts fell 18% to 539 units with a sales value of $266.7 million, a 27% decline, both compared to last year's fiscal fourth quarter.
Fourth-quarter cancellations totaled 233, a rate of 30.2%, up from 19.4% in the fiscal third quarter but below the 38.9% rate posted in last year's fiscal fourth quarter. As a percentage of beginning-quarter backlog, FY 2008's fourth-quarter cancellation rate was 9.0%, up from 6.4% in the previous quarter.
Average prices fell 14.5% to $495,000, owing to a higher averageprice($785,000) of cancelled units this quarter compared to the fiscal third quarter ($606,000).
Fourth-quarter-end backlog value decreased 54% from last year's fourth quarter to approximately $1.33 billion, with units down 48.2% to 2,046.The company cut its community count to 273 selling communities at the end of the 2008 fiscal year, down from 315 at the end of fiscal 2007. Its land holdings at quarter's end was approximately 46,000 lots owned and optioned, compared to approximately 91,200 at peak at the end of second quarter of 2006. Approximately 14,000 lots are already improved, the company said, although they are not spread proportionately across all regions.
The company ended the quarter with $1.63 billion in cash and more than $1.32 billion available under its credit facility. It has no public debt maturing until mid 2011. The net debt-to-capital ratio at the end of the quarter was 12.6%, its lowest ever.
That puts Toll in a position to go on the hunt for attractive assets, but chairmand and CEO Robert I. Toll said the company is not ready to shop just yet. "We are beginning to see some deals that are appealing in terms of quality but not price," he said. "We believe our strong capital position will give us an advantage in competing for them at the appropriate time."
Regarding the housing market, Toll said, "Obviously there are enormous challenges in our industry." He continued, "The most frustrating aspect of FY 2008 was that the longer it went, the worse it got -- this, no doubt, was due largely to the financial crisis which deepened over the course of the year."
"Two days before Thanksgiving 2008," said Toll, "the U.S. government announced a plan to aid the housing market by pumping hundreds of billions of dollars into the mortgage market, an action that significantly lowered mortgage rates immediately. Perhaps this initiative, which is a positive first step, combined with already dramatically improved affordability, will be a catalyst to stimulate customer demand, stop the decline in house prices and restore confidence in the new home market."
CFO Joel Rassman said that given market conditions, the company would offer only limited guidance for fiscal 2009: between 2,000 and 3,000 homes sold at an average delivered price of between $600,000 and $625,000 per home; cost of sales as a percent of revenues, before taking into account write-downs, higher in 2009 than in 2008; and higher SG&A expenses as a percentage of revenues."
Looking further ahead, Toll said, "As we look to the future, we see reduced competition from the small and mid-sized private builders who are our primary competitors in the luxury market." He added, "We believe a less crowded playing field, combined with attractive long-term demographics, will reward those well-capitalized builders who can persevere through the current challenging environment."
Shares of Toll (NYSE:TOL) shot up nearly 11% to $21.32 in mid-morning trading Thursday amid a rally in builder stocks set off by reports that the Tresury Department is considering a plan to reduce mortgage rates.