This summary is based on the first quarter fiscal 2009 earnings call conducted by Toll Brothers Inc. (TOL) on March 4, 2009.
Management:
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CEO: Robert Toll
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CFO: Joel Rassman
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SVP Finance, IR: Frederick Cooper
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CAO: Joseph Sicree
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President of TBI Mortgage Co.: Don Salmon
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VP Finance: Greg Zeigler
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CMO: Kira McCarron
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Assistant CFO: Mark Connor
Key Investors Issues
- Net loss was $88.9 million or 55 cents per share compared to a net loss of $96 million or 61 cents per share in 2008.
- Revenues were $409 million, down 51%.
First Quarter Highlights
Net loss was $88.9 million or 55 cents per share including pretax write-downs totaling $156.6 million, compared to a net loss of $96 million or 61 cents per share which included pretax write-downs totaling $245.5 million in 2008.
- Excluding write-downs earnings were $9.6 million, $9.55 million of which resulted from the net reversal of a prior tax provision, or $0.06 per share diluted.
- Revenues were $409 million, backlog was $1.04 billion, and net after cancellations signed contracts were $127.8 million.
- These totals represent declines of 51%, 56%, and 66% respectively in dollars and 45%, 51%, and 59% respectively in units compared to fiscal year 2008’s first quarter results.
- The firm ended with $1.53 billion in cash compared to $956.6 million at fiscal year 2008’s first quarter end.
The cash position was down slightly from the $1.63 billion at fiscal year 2008’s fourth quarter end principally due to the payment of previously accrued taxes and the retirement of purchased money mortgages and other debt.
- In addition it had $1.32 billion available under the bank credit facility which matures in March, 2011.
- It ended the quarter with a net debt to capital ratio of 14.5%, the lowest first quarter end level.
Homebuilding cost of sales before interest and write-downs as a percentage of homebuilding revenues was 78.3% which was higher than 2008 fourth quarter of 76.6%.
- The difference is principally a result of higher incentives, higher overheads per home as a result of fewer deliveries, and some mix issues.
- Interest expense included and cost of sales was 3.7% of revenues which is 70 basis points higher than 2008’s principally a result of inventory turning less quickly and less qualifying inventory under construction.
- In addition since qualifying of inventory for purposes of capitalizing interest is now lower then debt, the firm has some $800,000 of interest expense which is also included in G&A for the first time.
- Pretax write-downs were $156.6 million which included $143.3 million attributable to communities or land owned, $6 million attributable to joint ventures and $3.7 million attributable to options.
SG&A excluding the $800,000 interest charge previously discussed decreased 12% to $85 million, 20.8% of revenues.
- Other income of $11.3 million included approximately $6 million of retained deposits and $4 million of interest income.
- Toll Brothers currently estimates that it will deliver between 2,000 and 3,000 homes in fiscal 2009.
- It currently estimates that the average delivered price for the year will be between $600,000 and $625,000 per home.
Key questions and answers from the first quarter earnings call conducted by Toll Brothers Inc. (TOL) on March 4, 2009.
David Goldberg (UBS):
About the proposal in Obama’s budget to limit the deductibility of the interest portion of mortgage payments and what you think that means for both buyers?
Robert Toll: As soon as it was announced we got the pencils out, we cranked some numbers. Surprisingly enough if you, and I haven’t got the numbers in front of me, but there’s slight differential. Its not as bad as it sounded.
At first cutting it off at 28%, by the way charitable worked the same way as I recall, seemed like it was going to mean quite a bit but when we put pencil to paper it didn’t amount to much and we don’t think it will have much of effect on the sale of homes. If in fact it passes.
David Goldberg (UBS):
What do you have to see to start going out and acquiring lots that you thought (a) maybe you could deliver on quickly or you thought you were getting great deals?
Robert Toll: I think that we just need to be convinced that forgoing some liquidity and cash on hand is better then not buying so we balance very closely with an eye towards the balance sheet.
And want to make sure that its an absolute screaming bargain, that its shovel ready, that we can get homes to the market quickly, that we don’t have to improve the property of course and that it will be perceived by even the most cautious and conservative to have been a good buy.
The last thing we want to do is buy something that just slumps along and sells one a month and doesn’t put the money back on our balance sheet in fast order.
Kenneth Zener (Macquarie Research Equities):
Could you talk about the balance between specs, mix, incentives and how did that kind of the margin ended up reporting shipped versus your expectations throughout the quarter?
Joel Rassman: Its about 130, its about one-third from incentives, about one-third from, a little bit more then one-third from overheads and a little bit from mix.
