Bloomberg News

Toll Brothers Earnings Beat Estimates as Home Sales Rise

December 06, 2011

(Updates with delivery forecast in 12th paragraph.)

Dec. 6 (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury-home builder, reported earnings that beat analysts’ estimates as prices rose and sales improved at its East Coast communities.

Net income was $15 million, or 9 cents a share, for the fourth quarter ended Oct. 31, compared with $50.5 million, or 30 cents, a year earlier, the Horsham, Pennsylvania-based company said in a statement. Analysts expected earnings of 6 cents a share, the average of 18 estimates in a Bloomberg survey.

“We produced our second consecutive quarter of pretax profitability and our sixth consecutive quarter of pretax, pre- impairment profitability,” Chief Executive Officer Douglas Yearley Jr. said in the statement. “Although U.S. housing starts remain down 60 percent from historical norms, we produced solid improvement in most key metrics.”

Toll Brothers’ fourth-quarter results were boosted by demand for homes in the Boston-to-Washington corridor. While builders have struggled to compete as foreclosed properties sell at a discount and consumer confidence remains low, the company is the top performer in the Standard & Poor’s 1500 Homebuilding Index this year.

Fourth-quarter revenue rose 6 percent from a year earlier to $427.8 million. Home deliveries climbed 8 percent to 757 units.

New homes in the U.S. sold at an annual pace of 307,000 in October, the Commerce Department reported Nov. 28, keeping 2011 on pace to be the slowest sales year in records dating to 1963.

‘Margin Improvement’

“Significant margin improvement will only be achieved once we see the return of some urgency to the market, which should lead to increased sales prices and paces,” Chief Financial Officer Martin P. Connor said in the statement.

Because Toll Brothers has less than 1 percent of the U.S. market share, a sales increase of a few hundred homes or a few thousand dollars per unit “can have a more pronounced impact on earnings per share,” Jack Micenko, an analyst with Susquehanna International Group LLP in New York, said in a telephone interview before results were announced. He has a “positive” rating on Toll and expected earnings of 3 cents a share.

The homebuilder has spent about $235 million on land and related costs so far in the fiscal 2012 first quarter, compared with $35.6 million in the entire fourth quarter. Construction of developments will increase by 9 percent to 19 percent in the current financial year, the company said in the statement.

CamWest Purchase

Toll’s sales may be boosted by as many as 200 units next year because of its plans to open more New York City projects and its purchase last month of CamWest Development LLC, a closely held builder in Seattle, Micenko said.

Newly signed contracts in the fourth quarter totaled $389.9 million for 644 units, up 24 percent in value and 15 percent in units.

The average price for homes ordered was $606,000, up from $565,000 a year earlier. Sales in the New York area accounted for half of the increase in the average contract price for the quarter, Yearley said Nov. 8.

Toll forecast deliveries of 2,400 to 3,200 homes this fiscal year at an average price of $550,000 to $575,000 per home. In fiscal 2011, the builder delivered 2,611 homes.

The company forecast having between 235 to 255 selling communities at the end of its fiscal year, compared with 325 at its peak in 2007. It ended fiscal 2011 with 215 communities.

The fourth-quarter results included inventory and joint venture writedowns of $18 million.

Earnings were released before the start of regular U.S. trading. Toll yesterday rose 51 cents to $20.74. Its shares are up 9.2 percent this year, compared with a 5.5 percent decline in the 12-member S&P homebuilding index.

(Toll Brothers will hold a conference call today at 2 p.m. New York time. See TOL US <Equity> EVT <GO>.)

--With assistance from Brian Louis in Chicago. Editors: Daniel Taub, Christine Maurus

To contact the reporters on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net; Neil Callanan in London at ncallanan@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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