Toll Brothers Stock Jumps on Better than Expected Q4 Earnings

Toll Brothers, Inc, today reported preliminary results for its fourth quarter and fiscal year ended October 31, 2009.

FY 2009’s fourth-quarter net signed contracts of approximately 765 units and $430.8 million rose 42% in units and 62% in dollars compared to FY 2008’s fourth-quarter totals. FY 2009’s fourth-quarter totals also exceeded FY 2007’s fourth-quarter net signed contracts by 17% in units and 18% in dollars. These increases were achieved despite having fewer selling communities: During FY 2009’s fourth quarter, the Company averaged 215 selling communities, down 26% from 290 in FY 2008’s fourth quarter and down 32% from 315, its fourth-quarter peak, in FY 2007. The Company’s contract cancellation rate, (current-quarter cancellations divided by current-quarter signed contracts) was at 6.9% in the fourth quarter of FY 2009, which was in line with its pre-downturn historical averages.

On a per-community basis, FY 2009’s fourth-quarter net signed contracts of 3.56 exceeded FY 2008’s fourth-quarter total of 1.86 units by 91%, and exceeded FY 2007’s fourth-quarter total of 2.08 units by 71%. FY 2009’s total was 4% above FY 2006’s fourth-quarter total of 3.42 units, but still well below the Company’s twenty-year fourth-quarter average of 6.16 units per community.

The Company’s FY 2009 fourth-quarter home building deliveries and revenues of approximately 860 units and $486.6 million declined 20% in units and 30% in dollars, and its fourth-quarter-end backlog of approximately 1,531 units and $874.8 million declined 25% in units and 34% in dollars, compared to FY 2008’s fourth-quarter results.

For the full fiscal year ended October 31, 2009, net signed contracts of approximately 2,450 units and $1.30 billion dollars declined 16% and 19% respectively, compared to FY 2008. The Company’s FY 2009 home building deliveries and revenues of approximately 2,965 units and $1.76 billion declined 37% in units and 44% in dollars compared to FY 2008.

Robert I. Toll, chairman and chief executive officer, stated: “We have definitely progressed from one year ago. The shock to the financial system in mid-September 2008 that shut down the capital markets appears to be mostly behind us. The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving; we sense that it is, though slowly and through choppy waters.

“Home buyers began to emerge from their bunkers in late March 2009 and the market continued to gain momentum up to Labor Day. Since then demand has been volatile: This may be due in part to typical seasonality, but the more likely cause is concern about unemployment and the overall economy.”

Joel H. Rassman, chief financial officer, stated: “We continue to focus on maintaining significant liquidity. We ended FY 2009 with $1.81 billion of cash and $101 million of marketable treasury securities, compared to $1.66 billion of cash at FY 2009’s third quarter-end and $1.63 billion at FYE 2008. At FYE 2009, we had $1.38 billion available under our $1.89 billion 30-bank credit facility, which matures in March 2011.

“We also continue to strengthen our balance sheet. In April of 2009, we became the first public builder to tap the public debt markets in the aftermath of the September 2008 financial crisis. Since then, we have issued $650 million face value of senior notes with a weighted average maturity of 9.1 years at the time of issuance. Effective December 1, 2009, we will have retired $543 million of public debt, which includes $48 million we recently called for redemption, with a weighted average maturity of 2.5 years at the time of retirement; we also will have extended the average maturity of our public debt from 3.5 years to 6.1 years. As of December 1, 2009, we will have no public debt maturing before FY 2013. We expect to record a charge of $11.6 million for the fourth quarter and $13.7 million for FY 2009 due to the early retirement of debt.

“Our fourth-quarter unit deliveries exceeded the high end of our range of guidance due to the delivery of a higher percentage of our backlog, fewer cancellations, and the sale of quick delivery homes.

“While we have not yet finalized our impairment analysis, we estimate that pre-tax write-downs related to operating communities, land and land options, and joint ventures in FY 2009’s fourth quarter will be between $50 million and $125 million. This compares to impairments of $115.0 million in FY 2009’s third quarter, $119.6 million and $156.6 million, respectively, in FY 2009’s second and first quarters, and $172.7 million in FY 2008’s fourth quarter.”

Robert Toll continued: “We are pleased that the home buyer tax credit was extended and that eligibility for the credit was expanded beyond those buying their first home. We believe this will help bring some reticent home buyers into the market and will also put some people back to work.”

The results announced today are preliminary and unaudited. The Company will announce final fourth-quarter and FYE 2009 results, including earnings, on December 3, 2009.

Toll Brothers’ preliminary financial highlights for the fourth-quarter and FYE 2009 periods ended October 31, 2009 (unaudited):

  *  The Company's FY 2009 fourth-quarter net contracts of
     approximately 765 units and $430.8 million, increased by 42% and
     62%, respectively, compared to FY 2008's fourth-quarter net
     contracts of 539 units and $266.7 million. In addition, in
     FY 2009's fourth quarter, unconsolidated entities in which the
     Company had an interest signed contracts of approximately
     $28.1 million.

  *  FY 2009's twelve-month net contracts of approximately 2,450 and
     $1.30 billion declined by 16% and 19%, respectively, compared to
     FY 2008's twelve-month net contracts totals of 2,927 units and
     $1.61 billion. In addition, in FY 2009's twelve-month period,
     unconsolidated entities in which the Company had an interest
     signed contracts of approximately $56.6 million.

  *  The Company signed 822 gross contracts totaling approximately
     $462.0 million in FY 2009's fourth quarter, an increase of 6% and
     3%, respectively, compared to the 772 gross contracts totaling
     $449.7 million signed in FY 2008's fourth quarter.

  *  The Company signed 2,903 gross contracts totaling approximately
     $1.63 billion in FY 2009, a decline of 26% and 31%, respectively,
     compared to the 3,920 gross contracts totaling $2.34 billion
     signed in FY 2008.

  *  In FY 2009, fourth-quarter cancellations totaled 57. This
     compared to 78, 161, and 157, respectively, in FY 2009's third,
     second and first quarters; 233, 195, 308, and 257, respectively,
     in FY 2008's fourth, third, second and first quarters; 417, 347,
     384, and 436, respectively, in FY 2007's fourth, third, second
     and first quarters; and 585 and 317, respectively, in FY 2006's
     fourth and third quarters. FY 2006's third quarter was the first
     period in which cancellations reached elevated levels during the
     current housing downturn.

  *  FY 2009's fourth-quarter cancellation rate (current-quarter
     cancellations divided by current-quarter signed contracts) was
     6.9%, the lowest since FY 2005's fourth quarter and in line with
     historical averages. This compared to 8.5%, 21.7% and 37.1%,
     respectively in FY 2009's third, second and first quarters;
     30.2%, 19.4%, 24.9% and 28.4%, respectively, in FY 2008's fourth,
     third, second and first quarters; 38.9%, 23.8%, 18.9% and 29.8%,
     respectively, in FY 2007's fourth, third, second and first
     quarters; and 36.7% and 18.0%, respectively, in FY 2006's fourth
     and third quarters.

  *  As a percentage of beginning-quarter backlog, FY 2009's
     fourth-quarter cancellation rate was 3.5%, the lowest in over
     three years.