Toll Brothers Declines After Unexpected Loss on Expenses

Toll Brothers Inc., the largest U.S. luxury-home builder, fell the most in three months after reporting a surprise first-quarter loss as revenue declined and expenses increased.

The net loss was $2.79 million, or 2 cents a share, for the three months ended Jan. 31 compared with profit of $3.42 million, or 2 cents, a year earlier, the Horsham, Pennsylvania-based company said today in a statement. Analysts expected earnings of 3 cents a share, the average of 14 estimates compiled by Bloomberg.

Unexpectedly high expenses contributed to the loss, according to Wilkes Graham, an analyst at Compass Point Research & Trading in Washington. Administrative expenses were “21.6 percent of revenues, the all-time highest general and administrative margin for Toll,” Graham, who has a “neutral” rating on the company, said in an e-mail.

“We were looking for 16 percent,” he said. “Closings being down 1 percent didn’t help either.”

Toll Brothers fell 5.2 percent to $22.48, the biggest decline since Nov. 9, at the close in New York. The company was the second-biggest loser in the 11-member Standard & Poor’s 1500 Homebuilding index, which fell 2.7 percent.

Some of the costs were because of the acquisition in November of CamWest Development LLC, a closely held homebuilder that operates mostly in the Seattle metropolitan area, Graham said. Martin Connor, Toll Brothers’ chief financial officer, cited the purchase as a reason for the increase.

“We are growing the company,” Connor said in the statement. “With such growth comes some increase in our selling general and administrative cost in advance of revenues.”

Builders Struggle

Homebuilders have struggled to compete as foreclosed properties sell at a discount and the U.S. unemployment rate remains above 8 percent. Toll Brothers depends on people selling their homes and buying its more expensive residences.

Sales of previously owned U.S. homes rose in January to an annual pace of 4.57 million, the highest level since May 2010, the National Association of Realtors reported today from Washington. The results were below the median forecast of 4.66 million by 74 economists surveyed by Bloomberg.

U.S. new-home sales in January, scheduled for release Feb. 24, probably rose to an annual pace of 315,000, the median estimate of 75 economists surveyed by Bloomberg. Last year, 302,000 new homes sold, the slowest pace in Commerce Department records dating to 1963.

Miss Not ‘Significant’

Toll Brothers’ earnings miss wasn’t “significant,” because it was caused by the longer period needed to complete high-rise condos in New York, which accounted for its most profitable sales, Chief Executive Officer Douglas Yearley Jr. said on Bloomberg Television today.

“This is the best we’ve felt in about five years,” he said on “Street Smart” with Trish Regan. “For the first three weeks of February, our orders are up significantly. We’re seeing deposits up. We’re seeing traffic up.”

Toll Brothers’ first-quarter revenue fell to $322 million from $334.1 million a year earlier. Home deliveries dropped to 564 units from 570 units. The company’s results included a net tax benefit of $3.6 million, less than the previous year’s $20.5 million benefit.

‘One-Off Event’

The company reported pretax writedowns on inventory of $8.1 million. Toll Brothers probably booked the charges now because its business otherwise is strong and improving, Steven Blitz, chief economist for ITG Investment Research Inc., said before the report was released.

“I’d look at that as a one-off event,” Blitz said by telephone.

Newly signed contracts totaled $444.7 million for 652 units, up from $307.2 million for 548 units a year earlier. The average price for homes ordered was $682,000, up from $561,000.

The company will deliver 2,600 to 3,200 homes in fiscal 2012, according to the statement. The lower number is 200 homes more than an estimate in its fourth-quarter earnings statement, issued Dec. 6. The average price will be $550,000 to $575,000 each, the same as in December, Toll Brothers said.

Megan McGrath, an analyst at Stamford, Connecticut-based MKM Partners LP said she was “encouraged” by that projection. Orders are “solid and gross margins essentially in line with expectations,” she wrote today in a research note.

She also cited higher administrative costs and lower-than-expected closings in her note.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE