Profit Growth Slows at Home Builder Toll

Home builder Toll Bros. Inc.’s fiscal second-quarter earnings climbed at their slowest pace in three years as higher mortgage rates weakened the housing market.

Net income for the quarter ended April 30 rose 2.8% to $174.9 million, or $1.06 a share, from $170.1 million, or $1, a year earlier, Horsham, Pa.-based Toll said Tuesday. Its stock rose 1.7% after the company, the largest U.S. luxury home builder, didn’t cut its outlook as severely as analysts expected.

Analysts surveyed by Thomson Financial expected earnings in the latest quarter of $1.03 a share.

Rising mortgage rates reduced demand for new homes from companies including Toll, Pulte Homes Inc. and D.R. Horton Inc. The Federal Reserve’s two-year campaign to contain inflation and home prices with higher interest rates sent mortgage rates to a four-year high last week.

“If builders aren’t able to achieve order volume during the spring, there’s little chance to make it up in the back half of the year,” said Rick Murray, an analyst at Raymond James & Associates Inc.

Toll’s shares rose 45 cents to $27.35, limiting its decline this year to 21%.

“I think there are a lot of people out there breathing a sigh of relief because the reduction in earnings guidance” was not as large as expected, said Dan Poole, who helps manage about $34 billion in assets at National City Corp., which owns 7,300 shares of Toll.

Toll reduced its per-share earnings forecast for the year ending in October to $4.69 to $5.16, from $4.77 to $5.26, citing rising material and labor costs and a second-quarter write-down of 4 cents a share, mostly caused by weakness in the Detroit market.

Revenue climbed 17% to $1.44 billion from $1.24 billion, half the pace of the previous three months.

“We believe many customers currently feel a lack of urgency to purchase due to their uncertainty over the direction of home prices,” Robert Toll, the company’s chairman and chief executive, said in a statement. “This has contributed to keeping many potential buyers on the sidelines.”