- The Washington Times - Thursday, February 23, 2006

PHILADELPHIA (AP) — Luxury home builder Toll Brothers Inc. yesterday reported a 49 percent increase in net income for the first quarter, propelled by strong sales in the Southeast.

A decline in signed contracts, however, signals that future growth won’t be as robust with the continuing slowdown in the housing market.

Toll Brothers reported net income of $163.9 million (98 cents per share) for the quarter. That’s up from $110.2 million (66 cents per share) a year earlier.

Revenue increased 35 percent to $1.34 billion from $990.3 million.

Analysts polled by Thomson Financial expected profits of 92 cents per share on $1.35 billion in revenue.

In the quarter, Toll delivered 1,879 homes, up from 1,590 a year earlier. Its backlog of undelivered homes rose to 8,667, with a value of $5.97 billion, from 7,439 at $4.95 billion.

Looking ahead, Toll Brothers said net income for fiscal 2006 should range between $790 million and $870 million, or between $4.77 and $5.26 a share. Analysts had been expecting $4.94 a share.

“It won’t be easy,” said William Mack of Standard & Poor’s. “The operating environment becomes a little more difficult as we go further into this cycle.”

In the first quarter, the best-performing region for Toll Brothers was Florida and the Carolinas. Home-building revenue rose by 152 percent to nearly $213 million in the region.

The Northeastern states of Connecticut, Massachusetts, New Jersey, New York and Rhode Island had the second-highest growth, up more than 59 percent to $196 million. The Northeast was followed closely by Arizona, Colorado, Nevada and Texas, whose sales rose 58.7 percent to $247.3 million.

The Midwest — Illinois, Michigan, Minnesota and Ohio — experienced 33 percent growth, while the Pennsylvania, Delaware, Maryland and Virginia region recorded the smallest uptick at 1.7 percent — even though the region represented the biggest block of sales for the company at $393.6 million.

California showed the only decrease, down 16 percent.

But the picture is different with signed contracts, down 21 percent overall to $1.14 billion. All regions showed declines.

“In 2005, demand for new homes in many markets was propelled to unsustainable levels by speculative buying. We are now on the other side of that slope,” Chairman and CEO Robert Toll said. “Speculative demand has ceased and speculators are now putting their homes back on the market.”

Though conditions will be tough, Toll Brothers said it is well-positioned for growth based on strong demographics, restrictive land-approval regulations and its supply of 87,000 lots.

Mr. Mack said Toll Brothers is insulated from the slowing housing market because of its niche as a luxury home builder. Its well-heeled clients are not as sensitive to prices and mortgage rates. The company also puts more emphasis on making a good profit on each home rather than selling in volume.

“They’re more resistant to a slowdown because they’re less dependent on middle-income buyers,” Mr. Mack said. “Toll Brothers is unique. They’ll survive, and they’ll prosper.”

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