Toll Brothers' 4Q profit falls, tops Wall St. view

AP News
Posted: Dec 06, 2011 4:35 PM
Toll Brothers' 4Q profit falls, tops Wall St. view

Improved demand for high-end homes, especially in the pricey Northeast, is helping drive sales for luxury homebuilder Toll Brothers Inc.

The company, which reported a lower fourth-quarter profit on Tuesday, said revenue climbed as home deliveries and net signed contracts increased. It also capped its fiscal year with a 12 percent increase in its backlog of homes under contract _ a key barometer of future home deliveries heading into 2012.

Toll's forecast for next year leaves open the option for a decline in sales, but leans more toward an annual increase.

The builder bases that cautious optimism largely on the fortunes of its target market _ high-income earners who typically make more than $100,000 a year, can afford to make a down payment of as much as 30 percent on a home, have great credit and have an unemployment rate about half that of everyone else.

"We therefore believe that our customers have the ability to buy," said Robert Toll, the builder's executive chairman. "However a lack of confidence in the direction of the economy is perhaps the biggest impediment to releasing what we believe is significant pent-up demand."

Uncertainty over the economy, high unemployment and concerns that home prices have yet to hit bottom continue to keep many home buyers on the sidelines.

Sales of new homes rose nationally in October and September after declining from May through August, as builders cut prices because of depressed demand. Overall the sales pace remains behind last year's, which was the worst in half a century.

The luxury home market has fared better overall.

Sales of previously owned homes priced between $750,000 and $1 million have been running ahead of 2010 for most of this year. In September, they were up 11.5 percent, although they fell 8.8 percent a month later after new limits on the size of home loans that mortgage buyers Fannie Mae and Freddie Mac can buy kicked in.

Confident in its buyers' ability to weather the uncertain economy, Toll opened more communities in fiscal 2011 than in the previous two years and forecast that it will add more next year.

Last month it acquired privately held Seattle-area builder CamWest Development, marking its first expansion into a new state since before the housing crash.

Toll has operations in 20 states and is the nation's largest builder of luxury homes. Its main competition is smaller, private builders. As a result, it has gained a bigger slice of the market during the housing downturn as those builders languished.

A key growth area has been the Northeast corridor from Washington to Boston, which represents 60 percent of the builder's business.

Toll has built 13 high-rise condominiums in the New York-area market so far and opened three in fiscal 2011, including one with projected sales at $5 million per unit, the company said. It has three more under construction now and is planning eight more.

"What's great now is there's incredible urgency in New York, so we are raising prices regularly," said CEO Douglas Yearley Jr.

The builder's high-rise condo business accounted for only 10 percent of revenue in the fourth quarter, however.

Toll Brothers, based in Horsham, Pa., reported net income of $15 million, or 9 cents a share, for the three months ended Oct. 31, down from $50.5 million, or 30 cents a share, a year earlier. Last year's results included a $59.9 million tax benefit.

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Analysts surveyed by FactSet expected earnings of 5 cents a share.

Revenue rose 6 percent to $427.8 million. That beat Wall Street's $424.3 million estimate.

Toll shares rose 56 cents to close at $21.30. They are up almost 60 percent from their 52-week low of $13.16 set in early October. The stock peaked for the year at $22.42 in mid-February.

Toll's fourth-quarter home deliveries climbed 8 percent to 757 units. Signed contracts increased 15 percent to 644 units. The average price of its quarterly signed contracts was $606,000, up from $565,000 a year ago.

The homebuilder's contract cancellation rate was about 7.9 percent, down from 8.8 percent in the prior-year period.

For the full year, Toll Brothers earned $39.8 million, or 24 cents per share, versus a net loss of $3.4 million, or 2 cents per share, in the previous year.

Annual revenue dipped 1 percent to $1.48 billion from $1.49 billion.

The company ended the fiscal year with a backlog of 1,667 units under contract.

Toll predicts that it will deliver between 2,400 and 3,200 homes in fiscal 2012. That range works out to a decline of 8 percent on the low end and an increase of 23 percent on the high end.