HORSHAM, Pa. – Luxury home builder Toll Brothers Inc. today reported preliminary results for home building revenue, backlog and contracts for its fourth quarter and fiscal year ending Oct. 31. Despite declines in the fourth quarter, the company said, its fiscal 2006 revenue eclipsed last year’s record.
Home building revenue declined 10 percent, backlog 25 percent and contracts 55 percent compared to those for the same quarter last year, the company said.
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For the fourth quarter, home building revenue were approximately $1.81 billion, down from the fourth-quarter record of $2.01 billion in fiscal 2005; the quarter-end backlog was approximately $4.49 billion, down from the fourth-quarter record of $6.01 billion in fiscal 2005; and signed contracts during the quarter were approximately $710 million, down from the fourth-quarter record of $1.59 billion in fiscal 2005.
Toll Brothers said its quarterly contract total was hurt by the higher than normal 585 cancellations, or about 7 percent of its backlog at the beginning of the fourth quarter, compared to 4 percent in the third quarter of 2006. Viewed as a percentage of contracts signed in the fourth quarter, cancellations totaled 37 percent, compared to 18 percent in the third quarter.
Nearly 25 percent of its fourth-quarter cancellations occurred in two markets – Orlando (14 percent) and northern California (11 percent) – where cancellation rates were disproportionately higher than the share of backlog, orders or communities.
For the full 2006 fiscal year, however, home building revenue rose 6 percent to a new record of about $6.12 billion, compared with the previous record of $5.76 billion in fiscal 2005.
Signed contracts were approximately $4.46 billion, a decline of 38 percent from the fiscal 2005 record of $7.15 billion.
Toll Brothers said it is responding to market conditions by reevaluating and renegotiating many of its optioned land positions. It reduced its land position by approximately 6,500 lots, ending the fourth quarter with ownership or control of about74,000 lots, down 19 percent from its high of about 91,200 lots at the end of the second quarter.
The company expects to take write-downs on owned or optioned land of $50 million to $100 million in the fourth quarter, reducing GAAP stockholders’ equity by about 1 percent to 2 percent and after-tax fourth-quarter earnings by about 18 cents to 36 cents per share.
These results are preliminary and unaudited. Based on its current backlog, the impact of lower fourth-quarter contracts, and the increased rate of cancellations, the company expects to deliver 6,300 to 7,300 homes in fiscal 2007, down from previous estimates of 7,000 to 8,000.
The company said it will announce final totals when it releases fourth-quarter and full fiscal year earnings results on Dec. 5; a conference call later that day will updated earnings guidance for fiscal 2007.
Meanwhile, the company will make a presentation to the investment community at 10:40 a.m. Thursday, Nov. 9, at the UBS Building & Building Products CEO Investor Conference. The presentation will be broadcast live through the company Web site (www.tollbrothers.com); to listen, click on the Investor Relations page, then select “Conference Presentations.” The webcast is also available at www.ibb.ubs.com, by clicking the “Conferences” icon then following the link for “Webcast,” next to the UBS Building & Building Products CEO Conference. The link will be available until Dec. 11.
“FY 2006 has certainly been a very tough and challenging year,” Chairman and CEO Robert I. Toll said in a statement today. “It is worth noting that, atypically, this housing market is weak in an environment of low interest rates and low unemployment. We believe weak buyer confidence is keeping many customers on the sidelines.
“We continue to look for signs that a recovery is imminent, but can’t yet say that one is in sight. We see some signs of pent-up demand when we have special sales events or new community openings. And in some markets, good weeks are interspersed amongst weaker ones.
“With continued growth in households and population, and fewer lots than usual making their way through the approval process, we believe that, once the current inventory overhang is absorbed and consumer sentiment turns positive, the market should improve more rapidly than is generally anticipated.
“Our nation’s demographics haven’t changed, and home ownership remains the American dream. With interest rates very attractive, the economy healthy and home builders motivated to move their product, it should be a great time to buy a new home. … With our broad geographic presence, diversified product lines and experienced team, we believe we will weather this challenging environment and emerge stronger.”
Luxury home builder Toll Brothers Inc. (www.tollbrothers.com) is based in Horsham, Pa., and is listed among the Fortune 500. Founded in 1967, it became a public company in 1986; the company’s common stock is listed on the New York Stock Exchange and Pacific Exchange under the symbol “TOL.” Toll Brothers operates in 21 states, including Rhode Island and Massachusetts.
