Monday, May 28, 2007

Gettin’ Down with Toll

Toll Brothers (NYSE:TOL) reported Q2 earnings results last week confirming a $119.7 million of pretax write-downs that served to depress their net income by an astounding 79% as compared to Q2 2006.

Additionally, Toll yet again reduced its expectation for the maximum number of homes delivered for 2007 from 7300 homes last December to 7000 in Q1 now to 6900.

During the conference call, CEO Bob Toll uncharacteristically offered very little optimistic sentiment even offering some skepticism regarding recent Treasury Secretary Paulson’s “market bottom” outlook and the recent up-tick in the Census Department’s New Home Sales.

“I think what that indicates is that most new homebuilders that are large, the public homebuilders, their average product goes anywhere from about $250K up to us which is about $700,000 so obviously the increase [in sales] is taking place below our space. Which means that we’re not out of the woods yet. I took with surprise yesterday and it’s now confirmed today by this analysis when the secretary of the treasury said that we’ve got the hard times pretty much behind us I wondered how many communities he had and where he got that information but I now understand that the information he got hadn’t been pealed away, I guess, to show that it was $150,000 housing. So I would say that we have not got the bad times behind us yet though it could be… you never know.”

When asked about the April year-over-year comparisons getting less negative Toll suggested that favorably comparing against a year that “stinks” is not what he’s looking for.

“As you get further in to a down market, in terms of length of time, the comparisons are going to get better. So that, ultimately, if we stay here for a long period of time, you will see that April sales equaled April sales last year. That’s not what we’re looking for of course. So, I think the statements are a little misleading. The comparisons are good but what you’re comparing to stinks so that’s why your getting unhappiness expressed by the public home builders.”

Ivy Zelman, analyst with Credit Suisse First Boston tweaked Bob Toll in a minor skirmish over Toll’s interest in buying additional land.

Toll: “I would hope that we would increase the land portfolio somewhat from where we are now, we are actively looking and trying to buy… We have raised thresholds because we can and I think we should operate more prudently, more carefully than we did when the market was going up.”

Ivy: “You don’t feel that having almost a 10 year supply of land is enough?”

Toll: “Well, we hope that it’s not 10 years Ivy.”

The complete conference call can be listened to here.

Here are some of the interesting data points from the Q2 release:

Second Quarter Results

  • Net income was $36.7 million down 79.0% compared to Q2 2006.
  • Pre-tax land write-downs totaled $119.7 million up 897.5% compared to Q2 2006.
  • Earnings per share declined 66.7% as compared to Q2 2006.
  • Total revenues were $1.17 billion down 18.75% compared to Q2 2006.
  • Net signed contracts were $1.17 billion down 25% compared to Q2 2006.
  • Quarter end backlog was $4.15 billion down 31.6% compared to Q2 2006.
  • Signed contracts was 2031 down 14% compared to Q2 2006.
Current 2007 Projections

  • Deliver 6100 – 6900 homes (prior estimate 6000 – 7000).