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alstry (35.36)

Did TOL Really Beat??? Next Q could be ROUGH!!!

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June 03, 2008 – Comments (2)

On May 13th, TOLL guided as follows:

``With conditions still weak in most markets, we expect to continue to face challenging times ahead. We are still in the midst of finalizing our second-quarter impairment analysis; however, we currently estimate that pre-tax write-downs in FY 2008's second quarter will be between $225 million and $375 million.''

TOLL actually took

"After-tax write-downs totaled $174.6 million, or $1.06 per share diluted."

Which brings impairments in at the low end of the scale.........so on a pre impairment basis, it is very likely TOLL could have missed estimates. Further, before Toll's update, analysts were only expecting a $0.17 loss.   It will be interesting to see how analysts react to this impairment musical chairs.

The real problems now are going forward>>>>>

FY 2008 second-quarter net contracts (after cancellations) totaled 929 homes, or $496.5 million, which were lower by 44% in units and 58% in dollars than FY 2007's second-quarter results of 1,647 net contracts, or $1.17 billion.

As a result backlog is down 50%.

The effect of these cancellations, coupled with the factors above, was to reduce the average price of net contracts in FY 2008's second quarter to $534,000 per unit. This compared to $580,000 and $557,000, respectively, in FY 2008's first quarter and FY 2007's fourth quarter, and $710,000 in FY 2007's second quarter.

On a net basis, TOL's sales are now coming in at around $534K versus $710 last year.

Based on the relatively high backlog conversion, TOL did an excellent job liquidating specs this Spring selling season.

Going forward, with 50% less backlog and much fewer specs, there is little chance of TOL meeting analysts' estimates for revenue declines of only 35%.

With much lower backlog and less specs, coupled with the current trend for more expensive homes cancelling, it is more likely that TOL's revenues for next quarter will come in at least 55-60% below last year.

Do you think this could be a reason why Mr. Toll is worried about the downward spiral in home prices?

``We believe Congress should jump-start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices."

Before Congress "jump-starts" the demand for new homes, do you think that existing home inventory needs to be cleared out first?

Again, until foreclosures slow, price declines will continue. This will serve to bring equilibrium pricing back sooner than later. Prices should and will settle out when they reach affordible levels for buyers. Plain and simple.

Instead of begging Congress to incentavize to build more homes, maybe Mr. Toll should just slow down for a while until balance comes back into the market. Once that balance comes back, maybe existing homesellers will be able to sell their homes to buy a brand new shiny Toll home.

(My previous post hits on this topic)

2 Comments – Post Your Own

#1) On June 03, 2008 at 9:12 AM, MakeItSeven (32.24) wrote:

The news adroitly avoids mentioning the contract cancellation rate this time even though in previous earning reports we often heard that the homebuilding market was improving because the cancellation rate was lower than previous quarters.

But we can roughly estimate that the contract cancellation rate is getting much worse this time from these lines:

Net contracts -- after cancellations -- totaled 929 homes, down 44% from 1,647. The value of those net contracts was $496.5 million, down 58% from $1.17 billion. Contract cancellations in the second quarter totaled 308 versus 384 a year earlier.

The contract cancellation rate is about 31% more than last year.

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#2) On June 03, 2008 at 10:19 AM, alstry (35.36) wrote:

My guess is that this could be one of the most interesting earnings CCs yet.  You may not want to miss it.

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