Toll Brothers Posts 3Q Loss as Revenue Falls

A Toll Brothers construction site of 47 luxury townhomes that will be selling for about $750,000 is...

A Toll Brothers construction site of 47 luxury townhomes that will be selling for about $750,000 is being built in Sunnyvale, Calif. Luxury home builder Toll Brothers Inc. reported a 3 percent increase in net income for its fiscal second quarter but said higher costs for materials and labor as well as steeper write-downs will drag down earnings for the full year.

(Paul Sakuma/AP Photo)
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Toll Brothers Inc. said Thursday it swung to a loss in its fiscal third quarter as weak demand for new homes forced the luxury builder to mark down the value of its land and unsold homes.

But Chief Executive Robert Toll said he is seeing signs the market is stabilizing — the company had the lowest contract cancellation rate in more than two years, and more buyers are putting down deposits.

"We believe that there is pent-up demand," Toll said in a statement, but noted the housing market won't begin to recover until the trove of foreclosed homes on the market are sold.

"Unfortunately, we can't predict when that will occur," he said.

The Horsham, Pa.-based builder lost $29.3 million, or 18 cents a share, in the three months that ended July 31. That's a reversal from a profit of $26.5 million, or 16 cents a share, in the year-ago quarter.

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Toll absorbed $84.3 million in after-tax write-downs in the quarter. Excluding the charges, earnings were $55 million, or 35 cents a share, and in line with Wall Street estimates.

Quarterly revenue fell 34 percent to $797.7 million from $1.21 billion, as revenue from completed contracts declined.

Still, investors were pleased. Toll's shares rose 27 cents, or about 1 percent, to $25.07 on Thursday.

Like other homebuilders, Toll's business has suffered through the third year of a housing market downturn the CEO called the worst in the company's history. Home sales are declining in the face of competition from heavily discounted foreclosed properties, tougher mortgage lending standards and lagging consumer confidence.

Toll's net contracts for the third quarter plunged 27 percent to 812 homes versus the same quarter last year.

On the bright side, only 195 buyers canceled their contracts.

The company also closed the quarter with a balance-sheet bolstering cash reserve of more than $1.5 billion — a key positive that investors look for in weighing how well the builder can weather the downturn and seize opportunities.