Housing markets are bad across the country and Toll Brothers was the latest large home builder to reflect that sentiment in a preliminary fourth-quarter earnings report Thursday.
Fourth-quarter home-building revenues declined 36 percent to $1.17 billion compared to the same period in 2006 at Toll Brothers, while the company’s $2.85 billion backlog declined 36 percent compared to fiscal 2006.
Toll Brothers reported 417 cancellations for the quarter, totaling approximately $328.5 million, compared with 585 cancellations totaling $412.3 million a year ago. That left fourth-quarter net signed contracts for 656 homes, or approximately $365.2 million, a decline of 35 percent in units and 48 percent in dollars compared to the same quarter in 2006.
Cancellations were heavily concentrated in high-priced markets and product lines, the company said.
“We continue to believe that excess supply created by cancellations, speculative buyers and overly ambitious builders; customer concerns about selling their existing homes; and a general lack of confidence are the primary impediments to our market’s recovery,” Robert I. Toll, chairman and CEO, said.
“An inability to obtain mortgages does not appear to be a major factor for our buyers, although it may affect our buyers’ buyers,” he said.
Toll said that while the foundation of the housing market — including solid demographics — remains strong, many of the company’s clients are on the sidelines watching and waiting. He said that as long as newspapers continue reporting how bad the market is, things won’t get any better.
“Perhaps, as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page,” Toll said.
“Then, hopefully, the positive underpinnings of low interest rates, low unemployment and a decent economy will raise consumer confidence and provide the platform for a turnaround in the new-home market,” he said.
Joel H. Rassman, Toll Brothers’ chief financial officer, said the pace of customer cancellations increased in the fourth quarter and that Toll Brothers and other home builders have observed weaker activity in October over September, suggesting tougher times may still be ahead.
“While we have not yet finalized our impairment analysis, we estimate that pre-tax write-downs in (fiscal 2007’s) fourth quarter will be between $250 million and $450 million,” Rassman said.
Toll Brothers stock (NYSE: TOL) was trading at $20.51 a share Friday morning, down 1.72 percent from the previous day’s closing price.
The company said it will announce final fiscal fourth-quarter earnings results on Dec. 6.
