This summary is based on the third quarter fiscal 2008 earnings call conducted by Toll Brothers Inc. (TOL) on August 13, 2008.
Management:
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Chairman of the Board, Chief Executive Officer: Robert I. Toll
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Chief Financial Officer, Executive Vice President, Treasurer, Director: Joel H. Rassman
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President of TBI Mortgage Co.: Don Salmon
Key Investors Issues
- Building revenues were $796.5 million, down 34% from $1.21 billion in the prior year.
- Both backlog at $1.75 billion, and net signed contracts at $469.7 million, declined 52% and 35% respectively.
Year to Date Highlights:
- Building revenues were approximately $2.46 billion, down 29% from 2007.
- Net signed contracts fell 49% to $1.34 billion.
Third Quarter Highlights
Building revenues were $796.5 million, down 34% from $1.21 billion in the prior year as both backlog at $1.75 billion, and net signed contracts at $469.7 million, declined 52% and 35% respectively.
- Results reflected the continued weakness in most of the markets, though management believes that there is growing pent-up demand from those who have postponed buying during the past three years.
- When the firm ran promotions and worked the phones for an area, the rate of deposits improved significantly.
- Although the rate of cancellations as a percentage of the backlog remain quite elevated compared to historical standards, total cancellations of 195 were the lowest quarterly total in over two years.
It has continued to trim the land positions, which now stand at approximately 48,500 lots, 68% of which it owns.
- The community count, which peaked at 325 in fiscal year 2007’s second quarter is currently at 290 and is now expected to be at approximately 275 by fiscal year-end 2008.
- The cash position of approximately $1.5 billion, combined with approximately $1.3 billion of availability under the bank credit facility, which extends to March 2011, provides nearly $2.8 billion of liquidity.
Market Insights:
- The passage of the 2008 Housing and Economic Recovery Act, Congress and offers a life line to many homeowners facing foreclosures, which could help keep more people in their homes and fewer distressed properties from coming to the market.
- It has provided an incentive to new customers to move off the fence and become first-time buyers in a market that very much is in their favor and this may help to restore confidence in the market.
- In the Northwest, Massachusetts remains unchanged, while Connecticut is currently the best market in the country.
- The New York suburbs are about the same as they were last time and most recently, the firm had a little more interest in the New York City urban markets of Brooklyn, Jersey City, and Hoboken than in the past few months.
In the Midwest, unfortunately it’s about the same for the Detroit, Chicago, and Minneapolis markets.
- In the mid-Atlantic region, things are also pretty much unchanged in Northern Virginia and Maryland.
- In the South, Raleigh has slipped a little, so has Charlotte and unfortunately, South Carolina, Georgia, most of Florida, are pretty much the same as they were in the last report, except Naples, which is doing better than the rest of Florida.
- Given current conditions, the firm continues to take write-downs and estimates that pretax write-downs related to operating communities, land and land options and joint ventures will be between $100 million and $200 million.
Key questions and answers from the third quarter earnings call conducted by Toll Brothers Inc. (TOL) on August 13, 2008.
Dan Oppenheim (Credit Suisse):
As you look at some of the opportunities out there with some of the privately held builders who are challenged financially, just given your balance sheet, what is your appetite for that?
Robert I. Toll: We will not hesitate to buy assets if we think they are a steal. We are not looking to buy the builders. I do not think we would be able to because most of their assets probably are under water and nobody is going to shoot themselves, so they are not going to give us a price that puts them under water.
Dan Oppenheim (Credit Suisse):
Have you done anything different there in terms of that Naples market being healthier?
Robert I. Toll: We think it’s the overall market. We have not done anything different there than we have done in the rest of the country.
Naples was perhaps the worst market that we had for some time and we were very happy to see it come back. It remains an anomaly though because the rest of Florida has not followed, as many other markets have not followed as well.
