Housing slump hammers Toll Brothers; revenue drops 21%

HORSHAM, Pa. -- The sales nonetheless beat analysts expectations and the stock rose Wednesday.

Robert Toll, the home builder's usually ebullient and candid chief executive, remains cautious. Nearly two years into the housing slump, which started with defaults by subprime borrowers, most markets remain weak, he said in a statement.

"With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down," he said.

Analysts said Toll Brothers, which has a mortgage-lending business, isn't as directly affected by subprime borrower problems, but it does have greater exposure to buyers with jumbo loans and those stretching for loans larger than their incomes justify.

Toll, the nation's largest building of luxury homes, expects to report third-quarter home-building revenue of $1.21 billion for the quarter, down from $1.5 billion for the same quarter last year, when it releases earnings on Aug. 22.

Analysts surveyed by Thomson Financial on average were expecting revenue of $1.08 billion.

"Things could have been worse," said Greg Gieber, an analyst with A.G. Edwards. "Orders have fallen back to where they were before the boom."

Net signed contracts or orders, a measure of future activity, fell 31% to $727.1 million. Cancellations rose to 23.8% in the quarter, compared with 18% in the prior year.

The backlog, a sign of past activity, fell by 34% to $3.67 billion.

Toll Brothers said it's taking pretax write-downs in the quarter ranging from $125 million to $175 million on homes it can't sell for a profit, as well as land options the company is abandoning.

Third-quarter cancellations increased to 347 from 317 in the prior year.

In the third quarter, Toll Brothers said revenues in its Western region — Arizona, California, Colorado and Nevada — were hit the hardest, down 24% to $321.7 million.