Luxury-home builder Toll Brothers Inc. reported net income of $173.8 million, or $1.07 per share diluted, compared with a fourth-quarter record of $310.3 million in fourth-quarter 2005. The earnings were close to analysts’ expectations.
The company “is re-evaluating and renegotiating many of its optioned land positions,” according to the earnings announcement, and the rate of cancellations was higher than normal.
Net income included pre-tax write-downs of $115 million, the company reported, compared with pre-tax write-downs in the fourth quarter of $1.4 million. Fourth-quarter earnings per share, including write-downs declined 42 percent compared to fourth-quarter 2005.
The company’s full-year net income was $687.2 million, or $4.17 per share diluted, compared with record net income of $806.1 million for the 2005 fiscal year.
Earnings per share, including write-downs, declined 13 percent for the full year compared to 2005, the company also reported. Excluding write-downs, earnings per share dropped 1 percent compared to 2005.
“As we previously announced, this quarter’s results were negatively impacted by our higher-than-normal 585 cancellations,” stated Robert I. Toll, company chairman and CEO. “With these cancellations creating unintended specs, we could face increasing margin pressure as we seek to move these homes.”
He also reported that after a 15-month slowdown in the housing market, “we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above. The metro D.C. suburbs of northern Virginia, which was the first market in which we saw activity slow, seems to have stabilized, although at levels much lower than those we have enjoyed over the past few years. In metro D.C.’s Maryland market, a more lot-constrained region where builders built fewer spec homes and there were fewer speculative buyers, the market also appears to be stabilizing.”
He noted that management, “which owns over 25 percent of our stock, is keenly aware of the 45 percent drop in our stock price since its peak in July 2005.”
The company’s fourth-quarter total revenues were $1.81 billion compared with the fourth-quarter record of $2.02 billion in 2005. The backlog at the end of the fourth quarter was $4.49 billion compared with the fourth-quarter record of $6.01 billion at the end of the 2005 fiscal year; and fourth-quarter signed contracts were $706 million compared with the fourth-quarter record of $1.59 billion in 2005. Revenues, backlog and contracts declined 10 percent, 25 percent and 56 percent, respectively, compared to record fourth-quarter results in 2005.
Full-year total revenues for 2006 were a record $6.12 billion, up 6 percent from last year’s previous record of $5.79 billion. Full-year signed contracts in 2006 were $4.46 billion, down 38 percent compared to the record of $7.15 billion last year.
“Projecting revenues and earnings results is difficult in the current environment,” the company announced. Toll Brothers expects to deliver between 6,300 to 7,300 homes in 2007, producing total home-building revenues between $4.34 billion and $5.1 billion. The homes are expected to have an average price of $660,000 to $670,000.
Toll Brothers projects net income of between $260 million and $340 million, or $1.58 to $2.08 per share diluted, in the 2007 fiscal year.
In the first quarter of 2007, Toll Brothers estimates that it will deliver 1,600 to 1,900 homes at an average price of $670,000 to $680,000.
The company will discuss its earnings during a 2 p.m. EST conference call today. Toll Brothers will broadcast the call live via the Investor Relations section of its Web site, at www.tollbrothers.com. The company recommends that participants log on at least 15 minutes before the start of the presentation to register and download any necessary software. The recorded call will be available at the Web site for replay through Jan. 31.