- The Washington Times - Tuesday, December 5, 2006

PHILADELPHIA (AP) — Luxury-home builder Toll Brothers Inc.’s fourth-quarter earnings fell 44 percent, but the company said it sees some signs of stabilization in the slumping housing sector and raised its forecast for first-quarter home deliveries.

Robert Toll, the company’s chief executive officer, told analysts yesterday that “it appears we’re off the bottom or a level above it” in some markets. But, he stopped short of saying the housing market seems to have turned because many other markets served by Toll Brothers still see sluggish sales.

Shares of Toll Brothers rose 96 cents, or 3.01 percent, to close at $32.87 in trading on the New York Stock Exchange.

In the fiscal fourth quarter, Toll Brothers posted net income of $173.8 million, or $1.07 per share, compared with $310.3 million, or $1.84 per share, during the same period last year.

Analysts surveyed by Thomson Financial were expecting fourth-quarter earnings of $1.06 per share.

Quarterly revenue dropped 10 percent to $1.81 billion from $2.02 billion, narrowly missing Wall Street’s estimate of $1.82 billion.

A higher-than-expected number of buyers canceled their orders in the latest quarter, and the company walked away from land it had optioned, or acquired a right to buy, amid the housing slowdown.

The most recent quarter includes write-downs of $68.7 million, or 42 cents per share, versus write-downs of $1.4 million, or less than a penny per share, last year.

Excluding the write-downs, which were mostly for owned and optioned land, fourth-quarter earnings were $1.49 per share in 2006.

Robert Toll said a few areas in the East Coast showed signs of stabilization, including Washington, D.C., and suburbs in Maryland and Northern Virginia.

After cutting projections for several quarters, the Horsham, Pa.-based builder raised the number of homes it expects to deliver in the first quarter to a range of 1,600 to 1,900 homes at average prices of $670,000 to $680,000. That’s up from a prior projection of 1,500 to 1,800 units.

But Greg Gieber, an analyst with A.G. Edwards, said the housing market may not have hit bottom yet.

“It’s too soon to tell,” he said. “In November, there is a seasonal uptick in home sales.”

Alex Barron, an analyst with JMP Securities, said heavy discounting by new-home builders also could account for the sales improvement.

“Builders were cutting prices more aggressively than before in order to generate some sales. I saw Toll Brothers doing the same thing,” he said. “That might get people to step up and buy them, but I’m not sure that’s stabilization.”

Mr. Barron said his own research into actual multiple-listing service sales in Washington, D.C., and other once-hot housing markets shows a continued slump. When the housing market is at its bottom, he said home prices will stabilize, sales will pick up and inventory will decrease.

Earlier this month, the National Association of Realtors reported a 0.5 percent increase in existing-home sales for October, the first increase in seven months. But the median price for a home sold dropped by 3.5 percent from a year ago, the largest year-over-year drop on record.

Lawrence Yun, the group’s senior economist, said the housing market may be starting to stabilize, pointing to the uptick in existing-home sales. He also observed that new-home sales figures and mortgage applications have been bouncing between declines and increases, not just undergoing a steady slide.

For the fourth quarter, Toll Brothers said the value of signed contracts fell by 56 percent to $706 million from a year ago. The worst showing was in Florida and the Carolinas, where the number of contracts fell by 78 percent.

The southwestern states of Arizona, Colorado, Nevada and Texas were the second weakest, down 62 percent in the number of contracts signed. Toll’s Midwest market — Illinois, Michigan, Minnesota and Ohio — had the smallest dip, down 38 percent in contracts. Signings plunged by roughly half in the Northeast, Mid-Atlantic and the West.

For fiscal 2007, the builder sees deliveries of 6,300 to 7,300 homes at an average price of $660,000 to $670,000 and total home-building revenue of $4.34 billion to $5.1 billion.

It anticipates full-year 2007 earnings in a range of $260 million to $340 million, or $1.58 to $2.08 per share. The projection includes a proposed accounting change that Toll Brothers expects will be implemented, which shifts earnings of 22 cents to 29 cents per share to later years.

Toll Brothers currently books the percentage of homes completed as revenue, with restrictions. The proposal would make the company recognize the revenue once the house is completely built.

Analysts expect earnings of $2.30 per share in 2007, excluding the proposed accounting change.

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