November 14, 2007

Philadelphia’s Toll Brothers Inc. reports both loss, negative sales for first time in company history

U.S. slump ‘worse’ than last, builder says

PHILADELPHIA

Toll Brothers Inc., the largest U.S. builder of luxury homes, says its home building revenue fell 36 per cent in the fourth quarter, as the glut of homes for sale continued to hamper recovery in the housing market.

Toll, which is expected to report its first quarterly loss in company history next month, said business in October was weaker than September, signalling the housing slump is far from abating.

“We can’t predict how long this down period will last,” Robert Toll, chief executive of the Horsham-based company, said in a recent conference call with analysts.

“We do think that this is worse” than the last housing slowdown in late 1987 through early 1991.

Toll said his company’s customers aren’t having trouble getting mortgages, despite the tight credit markets. The people buying the customers’ current homes, however, may be affected.

Toll Brothers expects to report US$1.17 billion in quarterly home building revenue, down 36 per cent from a year earlier, with the biggest declines coming in its high-end communities in the South and West. On Dec. 6, the company will announce fiscal fourth-quarter results for the three-months ended Oct. 31.

On average, analysts surveyed by Thomson Financial forecast quarterly revenue of US$1.13 billion and a six-cent per share loss.

Net signed contracts, an indicator of future business, fell by 48 per cent to US$365.2 million.

The value of cancelled contracts in the West was higher than contracts signed, so Toll Brothers booked a negative $15.6 million for the region.

“Toll has never lost money and they’ve never reported a negative order. This is the first time they will do both in their history,” said Alex Barron, senior research analyst at Agency Trading Group in Wayzata, Minn.

He said housing turned worse in the last three months as the availability of minimal documentation loans dried up much like the spigot for subprime loans was turned off.

Barron said the current housing slump is worse than the last slowdown because this time it’s a national problem. The late 1980s crisis wasn’t as widespread.

In the quarter, cancellations as a percentage of signed contracts rose to 38.9 per cent, Toll Brothers said. It is the highest quarterly cancellation rate since the third quarter of 2006. The cancellations were concentrated among the builder’s most expensive homes.

The cancelled high-end contracts and a shift in demand to the builder’s condominiums, which tend to be cheaper than single-family homes, cut the average contract price to US$557,000.

Associated Press

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