Toll Brothers Inc., Horsham, Pa. (NYSE:TOL) on Wednesday morning reported a profit for its fiscal third quarter ended July 31 of $42.1 million, $0.25 per share, including a tax benefit of $38.2 million and impairments and charges of $13.2 million. The gain compares with a profit of $27.3 million in the comparable quarter last year, which was boosted by a tax benefit of$26.5 million.
Toll shares moved up on the news and were trading up 4% at $15.34 at 10 a.m. Wednesday.
Minus the tax benefit and charges, the company earned two cents per share, roughly in line with analyst expectations for a gain of three cents per share. The company's land unit, Gibraltar Capital and Asset Management LLC, contributed $4 million in profit.
Home building revenues declined 13% to $394.3 million as deliveries slipped 14% to 693.
New orders were up 2% in units to 713 worth $406.7 million, also up 2%. The average selling price was roughly flat with last year's quarter at $570,000, approximately the same as in FY 2010's third quarter. The absorption rate fell 5% from last year's quarter to 3.51 units per community were 5% lower than FY 2010's third-quarter total and below the Toll's historical third-quarter average of 5.98 units per community. The cancellation rate was 7.4% in quarter, up from 6.2% in the prior year quarter, 3.9% in this year's second quarter and 5.7% in the first quarter of the year.
Backlog at quarter's end was up 9% from last year's quarter to 1,780 units, worth an aggregate $1.02 billion, an 8% increase. Toll Brothers had 207 selling communities, compared to 190 at the same time last year. The company said it expects to end the fiscal year with between 210 and 220 selling communities.
Lot count at quarter's end was approximately 36,200 lots owned and optioned, up from approximately 35,900 at the previous quarter-end and 35,800 one year ago.
The third-quarter gross margin, not including charges, rose to 23.4% from 22.1% in the prior-year quarter. SG&A fell from $67.2 million in last year's quarter to $64.6 in this quarter, approximately 16.4% of revenue.
Unconsolidated joint ventures sold homes worth $33.9 million during the quarter, down from $40.5 million in the prior-year quarter.
Toll ended the quarter with $1.18 billion in cash and marketable securities, down from $1.25 billion at the end of the prior quarter and $1.64 billion at the end of last year's fiscal third quarter. It spent $48.7 million in the quarter to retire $45.1 million of its senior notes due November 2012 and$75 million on land acquisition, roughly half of that for a prime site at 3rd Avenue and 22nd Street in the Gramercy Park area of Manhattan. Toll had$777.5 million available under its $885 million 12-bank credit facility, which matures in October 2014.
The net debt-to-capital ratio at the end of the quarter was 13.9%, up from 11.5% at the same time last year.
The company's guidance calls for deliveries of between 2,475 and 2,675 homes in fiscal 2011, reflecting a projected range of 620 to 820 home deliveries in the fiscal fourth quarter at an average price of between $555,000 and $570,000 per home.
In prepared commentary, Douglas C. Yearley, Jr., Toll Brothers CEO, said it was too early to determine whether the recent instability in financial markets was affecting home sales. "While late summer is generally not the best time to sell homes, in the short run, the stock market gyrations, the budget impasse, and the U.S. government bond rating downgrade are certainly not helping consumer confidence," he said. "However, we believe that historic low interest rates and the growing imbalance between housing production and demographics-driven demand bode well for the industry sooner or later: the key question, of course, is when."
He continued, "This past quarter's results indicated some continued stabilization in the upscale housing market, albeit at a level dramatically below historical levels. ... Our buyers generally have very strong financial profiles, which have enabled them to secure mortgage financing. Our large presence in the metro-DC-to-Boston corridor and our high-rise business in the metro New York City region give us a strong position in some of the more promising U.S. markets."
Robert I. Toll, executive chairman, also in prepared commentary, said, "Our sales are gaining some traction but consumer confidence is still weak and the housing sector remains in a fragile state. ...We are hopeful, based on some recent comments out of Washington, that the Administration and Congress now recognize that housing must be healed to lift the nation out of this recession. ... We hope that our leaders will proceed cautiously with housing as they review options to address the deficit by ensuring that liquidity remains available to the sector and that the foundations of our system that support homeownership are not dismantled."
Adam Rudiger, home building analyst at Wells Fargo, said in a research note that "despite the overall weakness in volume ... TOL's gross margin continues to show modest improvement and TOL was profitable in its core homebuilding operations (excluding joint ventures and earnings from Gibraltar, its distressed investing arm). We view this ability to operate at or above break-even in the current demand-depressed environment positively."
David Goldberg at UBS had a similar take: "We continue to believe Toll is well positioned to weather thedownturn, gain share at the higher end and emerge stronger once demand recovers."
