February 22, 2007 / 10:52 AM / 13 years ago

Weak housing drives down Toll profits

NEW YORK (Reuters) - Toll Brothers Inc. (TOL.N) on Thursday said the weak U.S. housing market drove down its quarterly profit 67 percent after write-downs for lower land values, and the luxury home builder lowered its forecast.

Robert Toll, chief executive of luxury home builder Toll Brothers Inc. , speaks at the Reuters Real Estate Summit in New York, June 27, 2006. Toll Brothers Inc. on Thursday said the weak U.S. housing market drove down its quarterly profit 67 percent after write-downs for lower land values, and the luxury home builder lowered its forecast. REUTERS/Brendan McDermid

U.S. housing demand has dropped over the course of the year on higher prices and interest rates, and Toll said it could not yet see a rebound going into the industry’s spring selling season.

For the fiscal first quarter ended January 31, Toll said it earned $54.3 million, or 33 cents per share, down from $163.9 million, or 98 cents per share, in the year-earlier quarter.

The results included write-downs of $96.9 million for the lower value of the land Toll owns or from forfeiting payments for land options Toll decided not to exercise, as well as a $9 million goodwill impairment charge related to its 1999 acquisition of Silverman Cos. in Detroit.

Excluding these items, the company said it earned 72 cents per share.

Analysts on average had expected the company to earn 36 cents per share, according to Reuters Estimates. The average did not include the acquisition-related charges.

Gross margins of 29.8 percent were better than expected though down 1.1 percentage points from a year earlier, indicating less use of incentives to sell homes.

Earlier this month, Toll said first-quarter land charges could run as low as $60 million or as high as $160 million.

Total revenue for the quarter fell 19 percent to $1.09 billion while contracts for new homes fell 33 percent to 1,027 units. The value of the contracts fell 34 percent to $749 million.

Prospective buyers canceled their contracts at a rate of 33 percent during the quarter, Toll had said earlier this month. Investors, home builders and other industry watchers have been looking for signs of an upturn, but Toll’s chief executive expressed caution.

“There are too many soft markets at this stage of the selling season to call a general upturn in the new home market,” Chief Executive Robert Toll said in a conference call with analysts.

The industry — which sees the week going into the Presidents Day holiday through the following weekend as one of the strongest selling periods of the year, is looking for an indication of a recovery or a protracted slump.

“It will be an important quarter for them and the industry,” Majestic Research analyst John Tomlinson said.

So far, business has been less than impressive, said Robert Toll, who is often seen as a spokesman for the industry.

“We’re a little more disappointed than we were two weeks ago,” Toll said. “For Presidents Day weekend we had good sales, but we didn’t have anything near the bump-up we would normally see.”

Toll lowered its forecast for the full year, to net earnings per share of $1.46 to $1.85, including write-downs of $60 million in the remaining three quarters. That is down from a prior forecast of $1.58 to $2.08.

The land-related charges could change, Toll said.

The company said it sees earnings for the second quarter, ending April 30, in the range of 43 to 57 cents per share. For the fiscal third quarter, the company sees earnings of 33 to 45 cents per share. And for the fiscal fourth quarter it anticipates earnings of 36 to 50 cents per share.

Toll shares were down 2.4 percent or 79 cents at $32.07 in afternoon trading on the New York Stock Exchange. Since hitting a recent trough in July 2006, Toll shares have gained about 35 percent. The Dow Jones U.S. Home Construction Index .DJUSHB, a yardstick that measures home builder performance, has gained 25 percent.

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