Toll Bros. Says Net Income Declines 19%

Luxury home builder Toll Bros. Inc. said Tuesday that the housing market slowdown pushed its quarterly profit down 19%, but the results beat Wall Street forecasts and the company issued a better-than-expected outlook.

Toll gave a revenue forecast for its next fiscal year that some analysts said might be too optimistic, but its stock rose 1.7%.

The softer market, about a year old, was reflected in Toll’s results, which showed that earnings for its fiscal third quarter ended July 31 fell to $174.6 million, or $1.07 a share, from $215.5 million, or $1.27, a year earlier. Wall Street analysts on average had forecast $1.04 a share, according to Reuters Estimates.

The company said write-downs, chiefly from options for land that it decided not to exercise, cost it about 9 cents a share in the quarter. The company cut back on its land holdings, ending the period with 82,900 acres under control, down from 91,200 at the end of May.

Chief Executive Robert Toll attributed some of the softness in demand to speculators unloading homes they had snapped up as investments in 2004 and 2005. He also cited home builders that constructed homes without first having a buyer.

“The continuing malaise in the housing market, we believe, is the result of oversupply of inventory and a decline of confidence,” Toll said in a conference call with analysts.

“It’s obvious from our numbers. You won’t see expansion in a year or two at the most, but that’s just a guess,” he later said.

Revenue slipped 1.3% to $1.53 billion. Analysts had expected $1.59 billion. Revenue and earnings reflect orders taken months earlier.

For fiscal 2007, the Horsham, Pa.-based builder said it expected to sell 7,000 to 8,000 homes at an average price of $635,000 to $645,000 each.

The projected sales and price translate into revenue of $4.9 billion to $5.7 billion, Banc of America Equity Research analyst Daniel Oppenheim wrote in a research note. Analysts’ average forecast was $5.10 billion.

“I think the company’s being too optimistic,” said JMP Securities analyst Alex Barron, who expects Toll to generate revenue of $4.3 billion in fiscal 2007.

The company cut its earnings forecast for the current fiscal year, ending in October, to a range of $4.41 to $4.63 a share, down from a previously lowered forecast of $4.69 to $5.16. Analysts’ average forecast is $4.40.

For the fiscal fourth quarter, Toll expects net income of $1.33 to $1.53 a share.

This month, Toll reported that new orders in the third quarter fell 47% to 1,443, while the value of those contracts sank 45% to $1.05 billion.

On Aug. 9, it said its cancellation rate in the period was about 18%, and cancellations were highest in last year’s hottest markets: Orlando, Fla.; Las Vegas; Phoenix; Palm Springs; and Northern California.

“I don’t see a turnaround in any of the markets, specifically,” Toll said.

Toll Bros. shares rose 43 cents to $25.20 on Tuesday but are down 27% this year.