Luxury home builder Toll Brothers said today that moderating home prices, softening demand and a tougher regulatory environment would contribute to fewer new-home deliveries next year and would likely affect full-year profits.

Investors reacted negatively to the news, sending the home builder’s shares (NYSE: TOL) down $4.61, or 11.7 percent Tuesday morning.

Toll Brothers today released its preliminary and unaudited fourth-quarter and full fiscal 2005 results, saying that the fourth quarter represents the highest revenues for any quarter in the company’s history. The company will announce final totals when it releases fourth-quarter and fiscal year-end earnings results on Dec. 8.

Robert I. Toll, chairman and CEO, said the company surpassed its expectations for fourth-quarter home deliveries, producing $2 billion in quarterly revenues.

Toll Brothers ended the quarter with 230 selling new home communities, he said in a statement.

“Because we have fewer selling communities than previously anticipated, and because we delivered some homes in FY 2005 that we had projected would be delivered in FY 2006, we now estimate delivering between 9,500 and 10,200 homes in FY 2006 versus our 8,769 deliveries in FY 2005,” Toll said. “This compares to our previous guidance of 10,200 to 10,600 home deliveries in FY 2006.

About 25 percent of the company’s communities have backlogs extending 12 months or more, he said, and therefore are not open for sale on a regular basis. “Even though we produced record contracts against FY 2004’s challenging fourth quarter comparison (FY 2004’s fourth quarter contracts were up 51 percent above FY 2003’s fourth quarter), we believe a shortage of selling communities, coupled with some softening of demand in a number of markets, negatively impacted our contract results.

Toll noted that the housing market may be entering a period of more moderate home price increases, more typical of the past decade than the past two years.

“We remain optimistic. The demographics for our industry remain outstanding due to continuing, regulation-induced, constraints on lot supplies and a growing number of affluent households,” Toll said.

According to preliminary, unaudited financial results, the company’s fiscal year 2005 fourth-quarter contracts were approximately $1.59 billion, or 2,272 homes, an increase of 4 percent from the same quarter a year ago.

For the full fiscal year 2005, the company’s contracts were valued at approximately $7.15 billion, or 10,372 homes, up 27 percent from fiscal 2004.

Toll Brothers’ fourth-quarter backlog of about $6.01 billion, or 8,805 homes, increased 36 percent from a year ago.

Fourth-quarter home-building revenues were approximately $2.01 billion, representing 2,957 homes, up 30 percent from a year ago. Fourth-quarter revenues from land sales totaled approximately $12.5 million, up from $1.6 million a year ago.

Home-building revenues for the full year were approximately $5.76 billion, representing 8,769 homes, up 50 percent from fiscal 2004. Revenues from land sales for the 12-month period totaled approximately $34.1 million, compared to $22.5 million the previous year.

Also during the fourth quarter of fiscal 2005, the company bought back 1.97 million shares of its stock at an average price of $44.26. For the full fiscal year, the company bought back 2.8 million shares of its stock at an average price of $42.26.

Toll Brothers services move-up, empty-nester, active-adult and second-home buyers and operates in 20 states.


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