Signs of life have appeared in the high-end housing market during the past three months, according to preliminary results reported early Wednesday by Toll Brothers (NYSE:TOL) for its fiscal third quarter ended July 31. The news sent shares of Toll up sharply in early trading.
Net new orders increased 3% to 837 units from the comparable quarter last year, Toll reported, and orders were up 44% from the company's fiscal second quarter, which ended April 30 and encompasses the traditional spring selling season. According to Toll CEO and chairman Robert I. Toll, the latter has occurred only three times since the company went public in 1986.
Toll said the third-quarter rate of conversions of deposits into contracts was the highest since 2005, and the cancellation rate for the quarter dropped to 8.5% from 19.4% in the comparable quarter last year. It was the lowest cancellation rate since second quarter, 2006. As a percentage of beginning-quarter backlog, FY 2009's the cancellation rate was 4.9%.
Toll's recession-driven scale-down in amenities was evident in new order dollars, however, with the total falling 5% from last year's quarter to$447.7 million. Home building revenues, meantime, fell 36% to approximately$461.3 million as closings dropped 36% to 792 units compared to last year's fiscal third quarter.
Backlog at quarter's end was approximately 1,626 units with an aggregate value of $930.7 million, down 37% in units and 47% in dollars versus the same time last year.
Lot count was down to 35,000 owned and optioned from 36,600 at the prior-quarter-end and approximately 48,500 at the same time last year. It peaked at approximately 91,200 in the second quarter of 2006. Community count was down to 215 from 245 at the end of last year's quarter and 325 at the end of the fiscal second quarter of 2007. The company said it expects to end the fiscal year with 205 or fewer communities.
"While the statistics ... cannot be considered determinative of the luxury segment's recovery, or that of the overall home building industry, we believe they are more indicative than anecdotal," said Toll in a statement."Many markets feel better than they did six months ago. The consumer interest we saw in April and May leveled off a bit from mid-June through mid-July, but has regained momentum more recently. As the supply of unsold housing inventory shrinks nationwide and, if consumer confidence continues to improve, we should see stronger demand: It has already positively impacted our pricing power as we are reducing incentives in many markets."
Toll also said many markets are "still stuck in the mud," but added that others are improving. "It does feel as if the fence sitters are looking for reasons to jump in on the side of buying," he said. "Price is no longer the overwhelmingly dominant factor. "
Toll ended the quarter with approximately $1.65 billion in cash, down from$1.96 billion at the end of this year's fiscal second quarter. While generated approximately $100 million of cash from operations, it paid down$32 million of project-related mortgage debt, paid $70 million in taxes, and retired $295 million of public debt, which together cost approximately $304 million in cash.
It issued $400 million in senior notes due in October 2017 in the second quarter, but its nearest-term debt has been reduced to $50 million due in 2012. At quarter's end, Toll had $1.35 billion available under its $1.89 billion 31-bank credit facility, which matures in March 2011.
Toll CFO Joel Rassman said the company expects to take between $90 million and $160 million in impairments when it reports results on August 27. It also expects to take substanital charges against deferred tax assets.
Share of Toll shot up more than 12% in early trading before settling back to$22.48 on heavy volume shortly after 10 a.m.