Toll Brothers posts quarterly profit on tax gains

By Reuters
Posted Aug. 25, 2010 at 10:28 a.m.

U.S. luxury homebuilder Toll Brothers Inc. beat Wall Street expectations and reported its first quarterly profit in three years Wednesday, sending its shares and those of other homebuilders higher.

While tax gains and lower writedowns on land values helped its profit, revenue of $454.2 million beat expectations by 15 percent. Orders fell 16 percent, but analysts had forecast declines of up to 30 percent.

The company also did a good job of holding down administrative costs, said Morningstar analyst Mike Gaiden.

“When things normalize, this company is in a very good position to deliver sound profitability,” Gaiden said.

Toll reported net income of $27.3 million, or 16 cents per share, for the fiscal third quarter ended July 31, compared with a loss of $472.3 million, or $2.93 per share, a year earlier.

Excluding a tax benefit of $26.5 million related to changes in accounting estimates, the company broke even, while analysts were expecting a loss of 14 cents a share, according to Thomson Reuters I/B/E/S.

It was not immediately clear if the estimates were comparable because some analysts may have included the tax benefit that Thomson Reuters I/B/E/S left out.

The company sounded cautious, despite the results.

“Recent economic and political news continues to dampen our customers’ confidence,” said Executive Chairman Robert Toll.

Wednesday the Commerce Department reported that in July, sales of new homes fell 12.4 percent from June to their slowest pace on record. Prices hit their lowest level in more than 6-1/2 years.

“Demand remains pretty abysmal,” Gaiden said.

The National Association of Realtors Tuesday reported that sales of used homes fell 27.2 percent in July from June to their slowest pace in 15 years.

The company transcended the weaker housing market, primarily because it took $12.5 million in writedowns on land that lost value, far less than analysts had anticipated and down from $115 million a year earlier.

Impairments fell because Toll was smart enough to identify and mark down its weakest assets early, Gaiden said.

Horsham, Pennsylvania-based Toll Brothers builds in 21 states, with a focus on people moving out of their smaller and starter houses into bigger ones.

Toll shares, which have fallen about 32 percent in the last four months, touched a 52-week low of $15.57 Tuesday but were up 3 percent at $16.66 in morning trading Wednesday.

Shares of D.R. Horton Inc, the largest U.S. homebuilder, were up 2.8 percent at $10.25 while the Dow Jones U.S. Home Construction Index was up 1.7 percent.

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