Toll Brothers may have chalked up another loss for the last quarter of its 2009 fiscal year, $111.4 million thanks mostly to land valuation write-downs, and executives expect the company will deliver even fewer homes in 2010, but its conference call Thursday had barely a note of negativism.
Even if market conditions are improving at only a slow pace--and there's still what CEO Bob Toll calls "choppiness" in the numbers that could indicate trouble ahead--having $1.8 billion in cash squirreled away builds confidence that the storm will be weathered.
And on the other side, there will be fewer players in the luxury market niche Toll specializes in as private builders have fallen by the wayside and the larger public builders have turned to the starter home market for volume. "We believe we are well-positioned to gain market share as the housing market gradually recovers," he said.
The Horsham, Pa.-builder of luxury homes even entertained a question about whether the company might have horded too much cash, that some might be better used to pay off interest expenses, even further reducing the company's debt below the unheard of in the industry 7.4% debt-to-equity level it sits at today.
Toll answered that the question is a one he's asked himself.
"Obviously I'm not sure [of the answer], or I would have done something," Toll said. Later, he added that some might be used to buy back equity in the future, but probably not to pay dividends.
The company reported earlier that its contract numbers were up nicely for the quarter that ended its fiscal year Sept. 30, up 42% in unit numbers and 62% in dollars compared with the same quarter in 2008.
But things have been slower since Labor Day, said Toll, and he's not sure whether it's due to normal seasonal trends or more trouble ahead. Ask him again at the end of February, he told analysts.
That's also when the company, which has frozen layoffs for now, will decide if it needs to cut head count further, he said.
Obviously the company could use its surfeit in cash to buy land, but it has lost four out of five recent bids on parcels. And Toll said land purchases are unlikely to require a large chunk of the company's war chest. "Having gotten whacked coming through the last four years" with land values depreciating, he's cautious about over-paying--or at least not "until our memory fades, and we get greedy again," he added.