Toll Brothers posts wider Q4 loss, shares fall
NEW YORK (Reuters) - Luxury U.S. homebuilder Toll Brothers Inc (TOL.N) reported a wider-than-expected quarterly loss on Thursday as revenue slumped and it wrote down the value of its land holdings, sending its shares down 7.5 percent.
Toll's fiscal fourth-quarter net loss was $111.4 million, or 68 cents a share, compared with a loss of $78.8 million, or 49 cents a share, a year earlier. Homebuilding revenue dropped 30 percent, to $486.6 million.
Analysts expected, on average, a loss of 46 cents a share, according to Thomson Reuters I/B/E/S.
The company will deliver between 2,000 and 2,750 homes in 2010, less than the 2,965 it delivered in 2009 and also less than many analysts had expected, said BGB Securities analyst Merrill Ross.
The forecast calls into question whether the company can return to profitability in the second half of 2010, as analysts had expected, Ross said.
"Employment trends are not attractive," she said. "Even people who could afford these houses might pull back a little. There's an emotional component that's unique to the luxury segment."
But that brand equity might work to the company's favor as it considers expansion both within and outside the United States, Fred Cooper, a senior vice president for finance, told Reuters in an interview.
Toll Brothers said the quarterly loss included charges of $85.5 million for writing down the value of land it owns, and a charge of $11.6 million from early debt retirement.
The selloff in its shares should be constrained by long-term investor confidence in the company's balance sheet, said FTN Securities analyst Joel Locker.
"The balance sheet is why most of the holders are in," Locker said.
With so much cash, $1.91 billion at the quarter's end, the company "will at some point consider a share buyback," Chief Executive Bob Toll said during a conference call with analysts. "A dividend is unlikely," he added.
The company, based in Horsham, Pennsylvania, has operations in 21 states and was ranked the 14th-largest U.S. homebuilder last year by Builder magazine.
CHARGES AND EXPENSES
Impairment charges were lower than the $179.5 million in last year's fourth quarter, but the company will likely be hit with more such charges in the future as land prices continue to decline. Credit Suisse analyst Dan Oppenheim sees $210 million in additional impairment charges.
The quarter's margins also disappointed as expenses as a percentage of revenue grew, Locker said.
"That ratio is moving in the wrong direction," said Ross. "It's costing them more to keep the company running."
Expenses will be higher as a percentage of revenue in 2010 due to next year's lower projected revenue, the company said in its statement.
"The choppiness in demand that began after Labor Day, following a stronger period from late March through late August has continued," said Toll, citing the usual seasonal slowdown.
But Oppenheim said traffic has slowed more than normal. "We think that part of the choppiness is a function of a natural slowing following the initial rebound in the fiscal third quarter, likely due to pent-up demand," he wrote in a note.
New home orders have improved across the industry since the summer due to a federal tax credit for first-time homebuyers and low mortgage rates. But many analysts see a slump in the immediate future as demand pulled forward by the tax credit levels off.
Toll shares closed down 7.5 percent, or $1.47, at $18.02 on the New York Stock Exchange, compared with a 3.1 percent decline in the Dow Jones U.S. Home Construction Index