Toll Brothers 1Q Revenue Slips 22 Percent
By Deborah Yao

AP Business Writer, Friday, February 6, 2008

PHILADELPHIA — Over a year ago, the chief executive of luxury-home builder Toll Brothers Inc. thought the housing slump could be touching close to the bottom. These days, the normally chipper Robert Toll bears much grimmer news — he still doesn't see "much light at the end of the tunnel" in the housing malaise. On Wednesday, Toll Brothers said home building revenue fell by 22 percent in the first quarter, its seventh consecutive quarterly decline. Toll said that despite historically low mortgage rates and falling home prices, a slowing economy could be spooking buyers. "Buyers seem to be hiding," Toll said. "The market's problem is a lack of confidence, not just regarding the direction of home prices, but ... the overall economy." Home building revenue fell to $842.7 million in the period spanning November to the end of January, compared with $1.1 billion a year earlier, according to the preliminary report.

Revenues in Florida, the Carolinas, Texas and, in 2008, Georgia, saw the biggest decline at 44 percent to $138.9 million.

The company began operating in Georgia only in 2008. The Mid-Atlantic and West states were tied at a 24 percent decline_ to $250 million and $227 million, respectively — while the North saw an increase of 7.5 percent to $227 million. Net signed contracts — a sign of future activity — were cut in half to $375.3 million. In the quarter, 257 contracts valued at $198 million were canceled. The cancellation rate came to 28.4 percent in the quarter, compared with 29.8 percent last year during the same period. In contracts, the Western states of California, Nevada, Arizona and Colorado plunged by 76 percent to $30.7 million. The North followed with 57 percent, the Mid-Atlantic at 37 percent and the South bled the least, down 26 percent. In contracts signed before cancellations, the average price per home fell 13 percent to $634,000. After taking into account canceled contracts, the average price fell to $580,000 as buyers backed out of higher-priced homes. Toll said part of the price decline resulted from sales of more multifamily units such as condominiums, which fetch lower prices then single family homes. Anna Torma, an analyst at Soleil, said in a research note that Toll needs to "aggressively" cut prices of backlog inventory to sell "spec" homes — those without a predetermined buyer. Toll said he's raising deposit requirements to deter cancellations and avoid having specs, which increases the risk to the builder. "We're not interested in selling houses and collecting deposits and getting stuck with specs" if buyers cancel, Toll said in a conference call with analysts. The Horsham-based builder expects to post pretax write-downs of $150 million to $300 million in the first quarter. Full earnings results will be released on Feb. 27. Shares of Toll Brothers fell by 74 cents, or more than 3 percent, to $21.13 on Wednesday.