Thursday, February 22, 2007

Song and Dance

It wasn’t that long ago that Toll Brothers (NYSE:TOL) CEO Robert Toll was talking of “dancing on the bottom” and “A-rated” California markets in an attempt to project a level of optimism that was more fiction than fact.

On December 5th 2006 Toll suggested:

“Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week… right now is a great time to buy a new luxury home.”

Well, today brings the Q1 2007 results for Toll Brothers (and as a proxy for the rest of the new construction market) and the outcome is certainly nothing to dance about.

Particularly shocking was that in their FYE 2006 report, Toll Brothers had budgeted $60 million for all of 2007’s pre-tax land write-downs and in Q1 2007 alone they have taken $96.9 million.

Toll is now projects $60 million in land write-downs for the remainder of 2007.

Additionally, in Q1 2007 net income plunged 66.8% as compared to Q1 2006 with total revenue declining 18.7%.

In today’s release Bob Toll now suggests:

“There are too many soft markets at this stage of the selling season to call a general upturn in the new home market. Demand varies greatly from week to week in individual markets.”

Here are some of the interesting data points from today’s release:

First Quarter Results

  • Net income was $54.3 million down 66.8% compared to Q1 2006.
  • Pre-tax land write-downs totaled $96.9 million up 98.8% compared to Q1 2006.
  • Earnings per share declined 66.3% as compared to Q1 2006.
  • Total revenues were $1.09 billion down 18.7% compared to Q1 2006.
  • Net signed contracts were $748.7 million down 34.3% compared to Q1 2006.
  • Quarter end backlog was $4.15 billion down 30.2% compared to Q1 2006.
  • Signed contracts was 1027 down 33.4% compared to Q1 2006.
Current 2007 Projections

  • Deliver 6000 – 7000 homes (prior estimate 6300 – 7300).
  • Net income of $240 - $305 million (prior estimate $260 - $340 million).
  • Additional land write-downs of $60 million.

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