This summary is based on the first quarter fiscal 2008 earnings call conducted by Toll Brothers (TOL) on February 27, 2008.
Management:
CEO: Robert Toll
CFO: Joel Rassman
Senior VP of Finance and Investor Relations: Fred Cooper
CAO: Joe Sicree
CMO: Kira McCarron
President of TBI Mortgage: Donald Salmon
VP of Finance: Greg Ziegler
Key Investors Issues
- EPS were a loss of 61 cents a share compared to earnings of 33 cents a share a year ago.
- Profit loss was $96 million, after $153.3 million in write-downs compared to earnings of $54.3 million in the year-ago quarter.
- Revenue dropped 23% to $842.9 million.
First Quarter Highlights
Toll Brothers generated a net loss of $96 million or 61 cents per share.
- This included pretax write-downs of $245.5 million, $27.8 million of which were attributable to joint ventures.
- Excluding write-downs, fiscal year 2008’s first quarter earnings were $57.3 million or 35 cents per share. For comparison, fiscal year 2007’s first quarter net income was $54.3 million or 33 cents per share after pretax write-downs of $105.9 million.
- Excluding write-downs, fiscal year 2007’s first quarter earnings were $118.9 million or 72 cents per share.
Total revenues were $842.9 million, 23% lower than fiscal year 2007’s first quarter total revenues of $1.09 billion.
- Backlog was $2.4 billion, 42% lower than fiscal year 2007’s first quarter end backlog of $4.15 billion.
- Gross signed contracts of $573.1 million and 904 homes declined 46% and 38% respectively versus year 2007’s same period totals of $1.07 billion and 1,463 homes.
- The company had 257 cancellations totally approximately $198 million compared to 436 cancellations totally $18.9 million in fiscal year 2007’s first quarter and 417 cancellations totaling $328.5 million in fiscal year 2007’s fourth quarter.
- Net after cancellations signed contracts totaled 647 homes or $375.1 million, a decline of 37% in units and 50% in dollars compared to fiscal year 2007’s first quarter results of 1,027 net signed contracts or $748.7 million.
The company ended quarter with approximately 55,000 lots owned and optioned compared to approximately 91,200 at peak at the quarter end of fiscal year 2006.
- The company ended the first quarter with 315 selling communities, down from the peak of 325 at second quarter end and expects to be selling from approximately 300 communities by fiscal year end 2008.
- The selling season has been weak for the third year in a row.
- The companies continue to conservatively trim land positions and focus on maintaining strong balance sheet and liquidity. Net debt to cap ratio stood at 26.8%, lowest level ever compared to 31% one-year ago.
- With over $950 million in cash and over $1.2 billion available in bank credit facility, which matures in March 2011, the company believes it is positioned to profit from opportunities that may arise in the current market.
Homebuilding cost of sales as a percentage of traditional homebuilding revenues before interest and write-downs was 74.6%.
- This was higher than the first quarter of 2007’s cost of sales, which was 71.1%, and also higher than 2007’s fourth quarter, which was 73.7%. The increase in cost of sales or decrease in margins from the fourth quarter was principally a result of product mix and higher incentives in this quarter’s closings.
- Interest expense was 2.5% of revenues, which was 30 basis points higher than the fourth quarter of 2007’s, principally a result of inventory turning less quickly and lower inventory to spread the cost to. Interest expense as a percentage of revenues will probably trend up for the rest of the year.
- The first quarter pretax write-downs were $245.5 million, which included $27.8 million of write-downs attributable to joint ventures and $72.5 million attributable to options as the company continues to revaluate, renegotiate, in some cases walk away from options. Approximately two-thirds of the first quarter write-downs were in Florida and Nevada and Arizona.
- SG&A was $121.3 million, approximately 14.4% of revenues compared to $134.2 million, approximately 12.3% of revenues in the first quarter of 2007.
- Other income was $20.1 million, including approximately $7 million of retained deposits and $8 million of interest income.
The effective tax rate was only 37%.
- As income shrinks or becomes negative, as in this first quarter, small changes in the allocation of income between states as a disproportionate impact on the effective tax rate.
- The average number of shares used to calculate earnings per share was 157.8 million. The creation of projections is difficult at any time. In this climate, it is particularly difficult to provide guidance given the numerous uncertainties related to the items such as sales paces, sales prices, mortgage markets, cancellations, market directions and the potential for and size of future impairments.
Key questions from the first quarter earnings call conducted by Toll Brothers on February 27, 2008.
Ken Zener (Merrill Lynch):
Could you compare the current situation with the bad results you had in 1999?
