This summary is based on the third quarter fiscal 2008 earnings call conducted by Toll Brothers Inc. (TOL) on September 3, 2008.
Management:
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Chairman and CEO: Robert Toll
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CFO: Joel Rassman
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SVP of Finance and IR: Fred Cooper
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CAO: Joe Sicree
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President of TBI Mortgage Co: Don Salmon
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VP of Finance: Greg Zeigler
Key Investors Issues
- The firm generated a net loss of $29.3 million or 18 cents a share diluted, from net income of $26.5 million or 16 cents a share in 2007.
- Revenues of $797.7 million were down 34% from $1.21 billion in 2007.
- The firm ended with over $1.5 billion in cash and over $1.3 billion available under the bank credit facility.
Year to Date Highlights:
- The Company generated a net loss of $219.0 million, or $1.38 per share diluted, compared to net income of $117.5 million, or 72 cents per share diluted in 2007.
- Total revenues of $2.46 billion were 29% lower the $3.48 billion realized in the prior year.
Third Quarter Highlights
The firm generated a net loss of $29.3 million or 18 cents a share diluted, from net income of $26.5 million or 16 cents a share in the prior year due to weaker sales.
- This included pre tax write downs of a $139.4 million excluding write downs.
- Revenues of $797.7 million were down 34% from $1.21 billion in 2007 as backlog of $1.75 billion was down 52%.
- Net contracts of $469.9 million were down 35% versus the prior year.
- The firm ended with over $1.5 billion in cash and over $1.3 billion available under the bank credit facility, which matures in March 2011.
- The firm has trimmed land position by 47% to 48,500 lots owned and auctioned compared to 91,200 lots in the peak of 2006.
It appears that per community traffic and deposits at sites over the past several months have been stabilizing, albeit at historical lows.
- It also appears that conversion rates from non-binding deposits to signed contracts have returned to more normal historical ranges this quarter, although absolute deposits are still very low.
- There is pent-up demand, when the firm has held promotions, many more buyers than usually have come out and put down deposits.
- Weak consumer confidence has kept many potential buyers from taking advantage of the current buyers market and tightened mortgage lending standards have sidelined others.
Home building cost of sales as a percentage of traditional home building revenues before interest and write-downs was 76.5%.
- This was higher than 2008''s second quarter of 75.2% with the increase in costs or decrease in margins from the second quarter principally a result of higher incentives and product mix changes.
- Interest expense was 2.9% of revenues, 10 basis points higher than 2008''s second quarter, principally a result of inventory turning less quickly and less average inventory under construction over which this spread costs.
- SG&A was $103.1 million, or 12.9% of revenues compared to $108.7 million, 13.3% of revenues expensed in the second quarter of 2008, and $131.7 million, 10.9% of revenues expensed in 2007.
- Other income was $20.6 million, including $9 million of retained earnings of paying deposits in the $8 million of interest expense.
Fiscal 2008 Outlook:
- Deliveries for the fourth quarter are estimated to be between 850 and 1,050 homes resulting in deliveries for the year to be between 4500 and 4700 hundred homes.
- The average delivered price per home for the fourth quarter is estimated to be between $640,000 and $650,000 per home.
Key questions and answers from the third quarter earnings call conducted by Toll Brothers Inc. (TOL) on September 3, 2008.
Michael Rehaut (JPMorgan):
Would you say these deals are smaller in nature, if these are just closing on home-by-home or asset-by-asset?
Robert Toll: Obviously they are home-by-home. We are not looking at opportunities. I do not think the deals are smaller than usual, as a matter of fact; they may be even a little larger.
Michael Rehaut (JPMorgan):
Geographically, where are you seeing it?
