Tuesday, December 05, 2006

Dancing On The Bottom

Today Toll Brothers released its “Fourth Quarter and FYE 2006 Earnings Results” report outlining both the dramatic drop-off in contract activity and income in 2006 as well as projecting a truly dismal future for 2007.

Particularly notable was the $92.7 million in after tax land write-downs to owned or optioned lots, a 94.5% increase compared to 2005.

Toll Brothers divested itself of some 17,200 lots in 2006 leaving them owning or controlling through options roughly 74,000 lots, a 19% reduction from the peak of 91,200 lots.

Worst of all though was Toll’s profound projections for a 50.5% - 60% decline in net income as well as a 17% - 29% fall-off in total revenues for 2007.

Additionally, Toll stated that they will budget an additional $60 million for land-write downs during 2007.

In the release CEO Robert Toll suggests the following:

“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, seem to be dancing on the bottom or slightly above. The metro D.C. suburbs of northern Virginia, which was the first market in which we saw activity slow, seems to have stabilized, although at levels much lower than those we have enjoyed over the past few years. In metro DC’s Maryland market, a more lot-constrained region where builders built fewer spec homes and there were fewer speculative buyers, the market also appears to be stabilizing.”

Right now is a great time to buy a new luxury home. Builders are motivated to sell their specs and the fundamentals that typically lead our industry out of a slowdown are already in place. Interest rates are near historic lows, unemployment is near an all-time low and the stock market is setting records.”

Although less than 30 days ago, this was Bob Toll’s sentiment:

“We continue to look for signs that a recovery is imminent but can’t yet say that one is in sight.”

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

Full Year Results

  • Net income was $687.2 million down 14.75% as compared to 2005
  • $92.7 million in after tax land write-downs up 94.5% as compared to 2005
  • EPS declined 13% as compared to 2005
  • Total revenues were $6.12 billion up 6% as compared to 2005
  • Signed contracts were $4.46 billion down 38% as compared to 2005
Forth Quarter Results

  • Net income was $173.8 million down 43.9% as compared to Q4 2005.
  • $68.7 million in after tax land write-downs up 97.9% as compared to Q4 2005
  • EPS declined 42% as compared to Q4 2005
  • Total revenues were $1.81 billion down 10% as compared to Q4 2005
  • End backlog was $4.49 billion down 25% as compared to Q4 2005
  • Signed contracts were $706 million down 56% as compared to Q4 2005
2007 Projections

  • $4.34 - $5.10 billion in total revenues for 2007 (a decline of 29% - 17%)
  • Net income between $260 mil - $340 mil (a decline of 62% - 50.5%)