Toll Brothers, Inc. (NYSE:TOL) early Wednesday reported preliminary results for its fiscal third quarter that included a 34% drop in revenues to $796.5 million, a 35% decrease in value of net new orders to $469.7 million and a 52% decline in the value of homes in backlog to $1.75 billion. Later in the day, during a conference call with analysts, CEO Robert I. Toll said, "It is as if we walked into the tar pit and sank up to our nose. ...We're not sinking any further, but we don't feel very good."

During the call, Toll said the company's best performing market is Connecticut and that there had been some improvement in the company's New York City-area communities; Naples, Florida; and Denver. Still, he said the market "got a little bit better, but on a microscopic baisis. With respect to traffic, it's still dismal."

He also said the company was keeping an eye out for acquistions, but he ruled out buying another builder. "We are not looking at builders," he said. "We're more than happy to talk to those who are financing the unfortunates."

While the company said it had not yet calculated the total write-downs it will take when it officially reports financial results on Sept. 4, CFO Joel Rassman gave an estimate of likely impairment charges of between $100 million and $200 million. He added, "Given the current state of the market, we are not comfortable giving earnings guidance."

The Company signed 1,007 gross contracts, down 40% from last year's fiscal third quarter, totaling approximately $587.9 million, down 40%. The cancellation rate fell to 19.4%, a significant reduction from last year's third quarter, when it was 38.9%, and from the first and second quarters of 2008, which were 28.4% and 24.9% respectively.

CEO Toll presented an optimistic view in the company's statement of preliminary results. "Our third-quarter results for revenues, contracts and backlog reflect the continued weakness in most of our markets," said Toll. "However, we believe there is growing pent-up demand from those who have postponed buying during the past three years.For example, when we run promotions and work the phones for a market, our rate of deposits improves significantly. "

He added, "Although the rate of cancellations as a percentage of our backlog remained quite elevated compared to our historical standards, total cancellations during the third quarter of 195 were the lowest quarterly total in over two years. We believe this reduction in cancellations is a positive sign."

Toll has reduced its owned and controlled lot count by 48.6% to approximately 48,500 lots, 68% owned, from a peak of 91,200 lots at the end of the 2006 second quarter. Community count stands at 290, down from 325 during the second quarter of 2007. The company expects its total community count to fall to 275 by the end of the current fiscal year.

Toll ended the quarter with approximately $1.5 billion in cash on hand and $1.3 billion available under its credit facility, which extends to March 2011, giving it $2.8 billion in liquidity.

For the nine-month period ended July 31, 2008, home building revenues were approximately $2.46 billion and net signed contracts were approximately $1.34 billion. These results represented declines of 29% and 49%, respectively, in dollars, and, 27% and 37%, respectively, in units, versus the same period last year.

The results beat analysts' expectations. Michael Rehaut, lead home building analyst at J.P. Morgan, wrote in a research note to investors, "Although management announced that impairments would be between $100million-$200million, vs. our $75 million estimate, unit orders declined just 19% YOY, well ahead of our -35% forecast. This outperformance suggests that Toll is gaining share as conditions deteriorate, in line with our view that the company's primary competitors--smaller custom builders--would be more significantly impacted by rising capital constraints."

Similarly, Carl Reichardt at Wachovia Securities put out a note stating, "New home unit orders (ex-tower sales and JVs) of 809 (-27% yr/yr) were above our 767 (-31 yr/yr%) estimate. Order price of $579K declined 11% yr/yr vs. our -17% estimate. TOL's 19% cancellation rate was better than the 25% reported last quarter and the 24% rate reported a year-ago. End-of-period active community count was 290 vs. 300 last quarter; we had expected a decline of 5 communities."