``We are now completing the third year of the worst housing market since we started in 1967. Weak consumer confidence has kept many potential buyers from taking advantage of the current buyers' market. Tightened mortgage lending standards have sidelined others. Single-family housing starts have decreased by approximately 65% from their peak in January 2006: Starts now stand at their lowest level since January 1991. We believe that most big public builders have sold off most of their spec inventory, which eventually should help stabilize home prices. However, we currently have to contend with foreclosures as the new low-priced competition.
``Once the supply of foreclosed inventory is exhausted, we believe that favorable demographics will kick in and the housing market in general will begin to recover; unfortunately, we can't predict when that will occur. These beneficial demographics include a projected continuing increase in household formations and in the number of affluent households, baby-boomer demographics that should provide a basis for greater demand for second homes, a maturing generation of echo boomers who will be positioned to seek the American Dream of home ownership, and a continuing growth in immigration, which should contribute to the demand for housing.
``With our land teams intact and significant capital available, we believe we are prepared, as in prior downturns, to take advantage of opportunities that will arise from the industry's distress. These resources, combined with our experienced management team, our diverse product lines, our brand name and the tremendous dedication of our associates, position us well as we plan for the future.''
Toll Brothers' financial highlights for the third-quarter and nine-month periods ended July 31, 2008 (unaudited):
* FY 2008's third-quarter net loss was $29.3 million, or $0.18 per
share diluted, compared to FY 2007's third-quarter net income of
$26.5 million, or $0.16 per share diluted. In FY 2008,
third-quarter net loss included pre-tax write-downs of $139.4
million, or $0.53 per share diluted. $96.3 million of the
write-downs was attributable to operating communities and owned
land, $9.7 million was attributable to optioned land and $33.4
million was attributable to joint ventures. In FY 2007,
third-quarter pre-tax write-downs totaled $147.3 million, or $0.54
diluted. $139.6 million of the write-downs was attributable to
operating communities and owned land and $7.7 million was
attributable to optioned land. FY 2008's third-quarter earnings,
excluding write-downs, were $55.0 million or $0.35 per share
diluted, down 52% and 50%, respectively, versus FY 2007.
* FY 2008's nine-month net loss was $219.0 million, or $1.38 per
share diluted, compared to FY 2007's nine-month net income of
$117.5 million, or $0.72 per share diluted. In FY 2008,
nine-month net income included pre-tax write-downs totaling
$673.0 million, or $2.56 per share diluted. $437.4 million of
the write-downs was attributable to operating communities and
owned land, $89.4 million was attributable to optioned land and
$146.3 million was attributable to joint ventures. FY 2008's
nine-month results included interest and other income of $100.2
million, $40.2 million of which was the net additional proceeds
received by the Company from a condemnation judgment. In FY 2007,
nine-month pre-tax write-downs plus a $9.0 million goodwill
impairment totaled $372.9 million, or $1.36 diluted. $338.7
million of the write-downs were attributable to operating
communities and owned land and $25.2 million was attributable to
optioned land. FY 2008's nine-month earnings, excluding write-downs,
were $193.6 million or $1.18 per share diluted, both down 43%
versus FY 2007.
* FY 2008's third-quarter total revenues of $797.7 million
decreased 34% from FY 2007's third-quarter total revenues of
$1.21 billion. FY 2008's third-quarter home building revenues
of $796.7 million decreased 34% from FY 2007's third-quarter
home building revenues of $1.21 billion. Revenues from land sales
totaled $1.0 million in FY 2008's third quarter, compared to $4.5
million in FY 2007's third quarter.
* FY 2008's nine-month total revenues of $2.46 billion decreased
29% from FY 2007's nine-month total revenues of $3.48 billion.
FY 2007's nine-month home building revenues of $2.46 billion
decreased 29% from FY 2007's nine-month home building revenues
of $3.47 billion. Revenues from land sales totaled $2.3 million
in FY 2008's first nine months, compared to $9.9 million in the
first nine months of FY 2007.
* In addition, in the Company's third quarter and first nine months
of FY 2008, unconsolidated entities in which the Company had an
interest delivered $39.9 million and $62.0 million of homes,
respectively, compared to $11.7 million and $47.1 million during
the third quarter and first nine months, respectively, of FY 2007.
The Company's share of profits from the delivery of these homes is
included in "Earnings from Unconsolidated Entities" on the Company's
Statement of Operations.
* In FY 2008, third-quarter-end backlog of approximately $1.75
billion decreased 52% from FY 2007's third-quarter-end backlog
of $3.67 billion. In addition, at July 31, 2008, unconsolidated
entities in which the Company had an interest had a backlog of
approximately $60.4 million.
* The Company signed 1,007 gross contracts totaling approximately
$588.1 million in FY 2008's third quarter, a decline of 31% and
40%, respectively, compared to the 1,457 gross contracts totaling
$972.2 million signed in FY 2007's third quarter.
* In FY 2008, third quarter cancellations totaled 195 compared to
308, 257, 417, 347, 384, 436, 585 and 317 in FY 2008's second
and first quarter, FY 2007's fourth, third, second and first
quarters and FY 2006's fourth and third quarters, respectively.
FY 2006's third quarter was the first period in which cancellations
reached elevated levels in the current housing downturn. FY 2008's
third quarter cancellation rate (current-quarter cancellations
divided by current-quarter signed contracts) was 19.4% versus
24.9%, 28.4%, 38.9%, 23.8%, 18.9% and 29.8%, respectively, in the
second and first quarter of 2008, and the fourth, third, second
and first quarters of 2007, and 36.7% and 18.0%, respectively,
in FY 2006's fourth and third quarters. As a percentage of
beginning-quarter backlog, FY 2008's third quarter cancellation
rate was 6.4% compared to 9.2% and 6.5% in FY 2008's second and
first quarters, respectively, 8.3%, 6.0%, 6.5% and 6.7% in the
fourth, third, second and first quarters, respectively, of FY
2007 and 7.3% and 3.6% in the fourth and third quarters,
respectively, of FY 2006.
* The Company's FY 2008 third-quarter net contracts of approximately
$469.9 million declined by 35% from FY 2007's third-quarter
contracts of $727.0 million. In addition, in FY 2008's third
quarter, unconsolidated entities in which the Company had an
interest signed contracts of approximately $15.2 million.
* FY 2008's nine-month net contracts of approximately $1.34 billion
declined by 49% from FY 2007's nine-month total of $2.64 billion.
In addition, in FY 2008's nine-month period, unconsolidated
entities in which the Company had an interest signed contracts of
approximately $43.2 million.
* The Company projects it will deliver between 850 and 1,050 homes
in FY 2008's fourth quarter with an average price of between
$640,000 and $650,000 per home. This will result in lower
revenues in the fourth quarter than in the third quarter. The
Company expects cost of sales (before write-downs) to be higher
as a percentage of revenues in FY 2008's fourth quarter than in
FY 2008's third quarter due to higher incentives and slower
delivery paces. Because, as described above, FY 2008's fourth
quarter revenues are expected to be lower than FY 2008's third
quarter revenues, the Company believes SG&A as a percentage of
revenues will be higher in the fourth quarter than in the third
quarter. Consistent with recent policy, the Company will not be
issuing earnings guidance at this time.
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RE.ality check:
Buy the stock but don't touch the overvalued properties! Discounting is not their game in the Hoboken market since they are positioned to wait it out.
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