26 August 2010

Toll Share Rise Leads Builders After Surprise Profit


Toll Brothers Inc., the largest U.S. luxury homebuilder, rose the most in three months after unexpectedly reporting its first quarterly profit since 2007.

Net income for the third quarter through July was $27.3 million, or 16 cents a share, compared with a loss of $472.3 million, or $2.93, a year earlier, the Horsham, Pennsylvania- based company said in a statement today. Analysts predicted a loss of 16 cents a share, according to the average of 12 estimates in a Bloomberg survey.

“This was clearly a better quarter than we had anticipated,” Megan McGrath, an analyst with Barclays Plc, wrote in a note to investors today. She had estimated Toll Brothers would lose 10 cents a share for the quarter.

Toll Brothers climbed 5.8 percent to $17.13 at 4:02 p.m. in New York Stock Exchange composite trading, the biggest advance since May 10. The 12-member Standard & Poor’s Supercomposite Homebuilding Index rose 3.7 percent. D.R. Horton Inc. gained 4.6 percent to $10.43 after analyst Stephen East of Ticonderoga Securities LLC raised the stock to “buy” from “neutral.”

Homebuilder shares rose even as a Commerce Department report today showed that new home sales plunged 12 percent in July to an annual pace of 276,000, the lowest in records dating to 1963. Sales of existing homes slid 27 percent in July to the slowest annual pace in records dating to 1999, the National Association of Realtors said yesterday.

Ending Streak

Toll Brothers recorded a $26.5 million gain from a tax benefit. That helped the company end a streak of 11 straight quarterly losses as housing demand slumped. Homebuilder orders have plunged since a federal tax credit of as much as $8,000 for buyers expired April 30.

Pretax writedowns for the period shrank to $12.5 million from $115 million a year earlier, the company said. Gross margins, a measure of profitability, improved to 16.4 percent from 12.9 percent a year earlier before writedowns.

“The improving operating margin is imperative,” East, who is based in New York, wrote in an e-mail. “It’s not stellar, but it’s a step in the right direction.”

Toll spent $104 million buying land in the quarter and now has 35,800 plots owned or under option, compared with 31,700 six months earlier.

The company, which had $1.64 billion in cash and equivalents at the end of the quarter, isn’t currently looking to merge with or acquire another large builder, Chief Executive Officer Douglas Yearley Jr. said in a conference call today.

‘Fragmented’ Industry

“We’ve always maintained there’ll be consolidation in the industry,” Yearley said. “The industry is fragmented so you’d think it would happen over time.”

The builder raised its estimate for the number of homes it will deliver by the end of the fiscal year on Oct. 31 to at least 2,500 units from a minimum estimate of 2,200 homes made three months ago.

The average selling price in the fourth quarter will probably be $560,000 to $570,000, Chief Financial Officer Joel Rassman said in the statement. In May, Rassman estimated average selling prices in the fiscal second half would be $540,000 to $560,000.

Buyers signed contracts for 701 Toll Brothers homes with a total value of $400.1 million in the quarter. A year earlier it sold 837 homes valued at $447.7 million. Revenue fell 1.6 percent to $454 million.

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