Home-Sale Surge Doesn't Reach Toll's Strata

HORSHAM, PA-Toll Brothers Inc.’s second-quarter and first-half net income and revenues continued their slide, but a drop in canceled contracts was seen as a somewhat positive sign. The luxury homebuilder’s financial report came a day after the government reported a 16% increase in April new home sales, the biggest increase since 1993.

“The increase is taking place below our space,” Robert Toll, chairman and CEO, said during a conference call. “I was surprised to hear the secretary of the Treasury say the hard times are behind us. We have not got the hard times behind us,” he said. Increased sales were at the $200,000 level, he said, in contrast to Toll Brothers’ average prices of $670,000 to $680,000.

Second-quarter and first-half net income was $36.7 million and $91 million, respectively. That compares with records of $174.9 million set in second-quarter 2006 and $338.8 million in the first half of 2006. This year’s second-quarter signed contracts are almost $1.2 billion, down 25% from the same quarter a year ago.

Cancellations for the second quarter of 2007, however, totaled 384 units, versus 436 units in the opening quarter of this year and 585 in the final quarter of 2006. The current cancellation rate is 18.9%, down from a rate of 36.9% in fourth quarter 2006. While encouraging, the company noted, “the cancellation rate is still well above the company’s historical average of 7%.”

Toll reported “glimmers of strength in certain territories.” Among them are Manhattan, Brooklyn and Queens, NY; Jersey City and Hoboken, NJ; Southern Connecticut and Duchess County, NY, the Philadelphia suburbs and Delaware. Toll also said that over the past weekend the company opened a community in Glenview, IL and took 32 non-binding contracts with 23 back-up offers.

Calling that “significant,” he said, “I think it shows that people are not afraid of catching a falling knife. I believe there’s pent-up demand that will open up as soon as they know they’re not buying into a down-draft.”

The company expects to deliver between 6,100 and 6,900 units this year. Asked if he was more positive now than he was a few weeks ago, Toll said, “I’m a little more confident, but I would emphasize little.”

Shares of TOL stock rose to $31.15 per share in early trading on the NYSE on May 24 before losing about $1 per share mid-day. This compares with a 52-week high of $35.64 per share this Feb. 2 and a 52-week low of $22.22 per share, which occurred July 18, 2006.