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Toll Brothers Earnings Call, Fourth Quarter 2008
Author: Maclintosh Kuhlengisa
Last Update: 1:47 PM ET December 12 2008


The homebuilder had a loss of $79 million or 49 cents a share on pre-tax write-downs and a 40% drop in sales to $700 million as signed contracts fell to $267 million. Opening fewer new communities enabled the firm to slow land development expenditures and conserve cash for future opportunities.

Investors Question and Answers

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This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Toll Brothers Inc. (TOL) on December 4, 2008.


- CEO: Robert Toll
- CFO: Joel Rassman
- SVP of Finance and IR: Fred Cooper
- CAO: Joe Sicree
- President of TBI Mortgage Co: Don Salmon
- VP of Finance: Greg Zeigler
- CMO: Peter Macaren

Key Investors Issues

- Net loss was $78.8 million or 49 cents per share from a net loss of $81.8 million or 52 per share in 2007.
- Total revenues were $698.9 million, down 40.3% from $1.17 billion in the prior year.
- Year-end backlog was $1.33 billion compared to $2.85 billion in the prior year.

Full Year Highlights:

- Toll reported a net loss of $297.8 million or $1.88 per share down from net income of $35.7 million or 22 cents per share in 2007.
- Total revenues were $3.16 billion, down 32% from $4.65 billion in the prior year.

Fourth Quarter Highlights

The firm had a net loss of $78.8 million or 49 cents per share diluted which included pre-tax write-downs totaling $175.9 million, an improvement from a net loss of $81.8 million or 52 per share in 2007 due to lower pre-tax write-downs and weaker revenues.

- Total revenues were $698.9 million, down 40.3% from $1.17 billion in the prior year as net signed contracts dropped to $266.7 million compared to $365.3 million in 2007.
- Year-end backlog was $1.33 billion compared to $2.85 billion in the prior year.
- The firm ended the year with over $1.63 billion in cash and more than $1.32 billion available under the 32-bank credit facility which matures in March, 2011, with no public debt maturing until second quarter of 2011.
- The financial turmoil accelerated concerns of all kinds among potential buyers and precipitated a large decline in consumer spending, a significant capital crunch, increased credit market disruption, and plummeting stock market values.

Lower homebuyer confidence and demand resulted in slower sales paces as the firm has been cutting back on the number of communities, ending the year with 273 selling communities, down from 315 in 2007.

- The company has reduced its land position by 33% to 39,800 lots owned and controlled compared to 59,250 at fiscal year end 2007.
- Firm is focused on managing investments in land and improvements and overheads as well as it can to match reduced demand and projected pace of production.
- On the national level new single-family housing starts have sunk to the lowest level since October, 1981.
- Homebuilding cost of sales as a percentage of traditional homebuilding revenues before interest and write-downs was 76.6%, slightly higher than 2008 third quarter of 76.5%.

Interest expense was 3.1% of revenues, 20 basis points higher than the prior period principally a result of inventory turning less quickly and less average inventory under construction over which to spread these interest costs; a trend which is likely to continue.

- Pre-tax write-downs of $175.9 million included $106.2 million attributable to communities or land owned, $54.4 million attributable to joint ventures and $12.1 million attributable to options.
- The firm currently estimates that it will deliver between 2,000 and 3,000 homes in fiscal 2009 and that the average delivered price for the year will be between $600,000 and $625,000 per home.

Key questions and answers from the fourth quarter earnings call conducted by Toll Brothers Inc. (TOL) on December 4, 2008.

David Goldberg (UBS): Comment on the sellers of the high quality land coming back on the market and not yet at attractive prices?

Robert Toll: The offerers are banks. In both cases I have two deals in mind that came recently and I think we’re not that far apart on price. We need some terms which will make it less risky for us and of course with the terms it will be less expensive as well.

Rob Stevenson (Fox-Pitt Kelton): Can you talk a bit about the jumbo mortgage market and what you’re being able to offer your buyers these days?

Don Salmon: The good news is we see real glimmers of hope on the jumbo market. We just struck a deal with a major bank to supply jumbo financing for some of our condo products. We’re having terrific conversations with banks.

We are about to we think consummate a deal with a major life insurance company and we see liquidity is coming back into the market, slowly but surely, but it sure is coming back.

Today on a conforming we’re at 5% and zero points. On the jumbo we are at 5 7/8 and zero points and we think those are terrific rates for consumers today. Those are on fixed rate product by the way.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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