Toll Bros. Posts 49% Gain in Profit as Sector Slows

Toll Bros. Inc., the largest U.S. builder of luxury homes, said Thursday that its fiscal first-quarter earnings rose 49%, the smallest gain in seven quarters, as the housing market slowed from 2005’s record pace.

Net income for the quarter ended Jan. 31 climbed to $163.9 million, or 98 cents a share, from $110.2 million, or 66 cents, a year earlier, the Horsham, Pa.-based company said. Toll’s shares rose 3.2% after it trimmed its 2006 earnings forecast by less than what some analysts anticipated.

The Standard & Poor’s Supercomposite Homebuilders index posted its biggest gain in six weeks Wednesday after Hovnanian Enterprises Inc. said first-quarter sales and orders rose more than analysts’ estimates.

Still, the 16-company index is down 18% since its July 20 peak as investors worry that higher mortgage rates will end the five-year real estate boom.

“Investors had a bolt of optimism that we’ll potentially see a soft-landing scenario in the housing sector,” said Rick Murray, the top-rated Toll analyst by StarMine. “We believe the landing is going to be harder than most expect, given the very high level of inventory the industry has right now.”

Toll said it expected 2006 earnings per share of $4.77 to $5.26, down from a Dec. 8 forecast of $4.79 to $5.27. The Thomson average was $4.94. Last year it earned $4.78.

Earnings growth in the quarter was the slowest since Toll’s fiscal second quarter in 2004, when net income rose 37% on a 35% jump in sales.

Shares of Toll, the sixth-largest U.S. builder by market value, rose $1.05 to $33.54.

Sales in the builder’s mid-Atlantic region of Delaware, Maryland, Pennsylvania and Virginia fell 11% from a year earlier, while sales in California fell 32%. Transactions in Florida, North Carolina and South Carolina more than doubled.