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By Mike Caggeso
A surprise to few, luxury homebuilder Toll Brothers Inc. (TOL) posted its second consecutive quarterly net loss yesterday (Tuesday), though the results were better than Wall Street expected.
As a result, Toll Brothers' stock gained a handy 3.44% by mid-afternoon in Tuesday trading as investors viewed it as a signal that the U.S. housing slump has more yesterdays than tomorrows. The stock was up 3.05% with a gain of 64 cents to close at $21.60.
The largest U.S. luxury homebuilder posted a net loss of $93.7 million, or 59 cents a share, in the quarter ended April 30 with a $36.7 million, or 22 cents a share, profit a year earlier.
This quarter's loss is technically related to write-downs and land value of a joint venture, but overall blame goes to the stagnant U.S. housing market.
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"In this difficult market, we continue to develop incentive strategies, when appropriate, on a community-by-community basis, which has enabled us to continue to generate pre-write-off profits," Robert I. Toll, chief executive officer, said in a statement. "Although this strategy has resulted in slower sales, we believe it has helped sustain the reputation of our communities and value for our home buyers."
Toll didn't stop there. He bluntly went on to suggest ways the U.S. Government can quicken the housing market's recovery – the key of which is removing the danger from existing homeowners who worry about selling their homes, and in turn, wait to buy a new one.
"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. As we have said before, we favor a tax incentive for all those who buy homes within nine months of the Bill's passage; this would create a sense of urgency. Interest rates are low, supply is abundant and a buyer's market prevails. With a little motivation, the new home market could turn around, which would have a very positive impact on banks, bond prices and many other areas of the economy. Once home prices stabilize, Congress could then more successfully address mortgage issues; however, without stabilization of home prices, trying to address mortgage issues may be difficult at best," Toll said.
Fittingly, "new homes" are exactly what Toll Brothers make and sell, but he makes a point.
For the first quarter, Toll Brothers posted its first loss in 21 years.
Toll Brothers made significant steps forward by reducing its risk at the source – shedding its land holdings from 91,200 in the second quarter of 2006 to its current number of 51,800.
The company also cut its net-debt-to-capital ratio from 31.8% a year ago to 22.7%.
"This liquidity will allow the company to take advantage of opportunities that arise from less financially flexible peers as we move through the downturn," UBS AG (UBS) analyst David Goldberg told Reuters, calling Toll Brothers a "buy."
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Toll Brothers Reports Second Quarter 2008 Results