This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Toll Brothers Inc. (TOL) on November 8, 2007.
Management:
Chairman and Chief Executive Officer: Robert Toll
Chief Financial Officer: Joel Rassman
Senior Vice President of Finance and Investor Relations: Fred Cooper
Chief Accounting Officer: Joe Sicree
Chief Marketing Officer: Kira McCarron
President of CBI Mortgage: Don Salmon
Executive Vice President of Finance: Greg Zigler
Key Investors Issues
- Home building revenues were down 36% to $1.17 billion.
- Gross signed contracts amounted to $693.7 million, down 38% from the prior year.
- Government data indicates that production of new homes has plummeted.
Full Year Highlights
- Homebuilding revenues were $4.63 billion, down 32.2% from $6.12 billion in 2006.
- Net signed contracts were $3.01 billion, a decline of 24% in home building revenues, and 33% in contracts compared to the prior year.
- Completed contract communities were down 22% from 8,600 in the prior year to 6,687.
Fourth Quarter Highlights
Home building revenues were $1.17 billion, down 36% from $1.81 billion in 2006 as a result of increased cancellations, with backlog declining 36% to $2.85 billion.
- Gross signed contracts amounted to $693.7 million, down 38% from the prior year, while homes declined 33% to 1,073.
- The firm had 417 cancellations totaling $328.5 million from 585 cancellations, totaling $412.3 million in 2006.
- The cancellation rate was 38.9% of current quarter contracts compared to 36.7% in 2006.
- Net-signed contracts totaled 656 homes, or $365.2 million, a decline of 35% in units and 48% in dollars from the prior year.
- The average price per unit of gross contracts signed was $646,000 down from $667,000, sequentially as the product mix in the near term shifted to a higher percentage of multifamily versus single-family communities than in the past.
The average price of the 417 cancellations was a much higher $788,000 per unit and the cancellations were heavily concentrated in high-priced markets and product lines.
- The effect of these cancellations, coupled with the product mix shift, reduced the average price of net signed contracts to a much lower $557,000 per unit.
- The firm had $900 million in cash and more than $1.2 billion available under a bank credit facility, which matures in March of 2011.
- In addition, the firm continues to manage and reevaluate its land position, which currently stands at 59,300 lots owned and optioned, compared to 91,200 lots at the peak in the second quarter of 2006.
- Selling communities numbered 315, down from a peak of 325 and the company expects to be selling from 300 communities by fiscal year end 2008.
Housing Outlook:
- Excess supply created by cancellations, speculative buyers and ambitious builders, as well as customer concerns about selling their existing homes, and a general lack of consumer confidence are the primary impediments to the market''s recovery.
- Fewer sites are proceeding through the land approval process, which could result in a shortage of buildable lots when confidence returns and markets reach equilibrium.
- Government data indicates that production of new homes has plummeted, which should help expedite the clearing of excess inventory.
Key questions and answers from the fourth quarter earnings call conducted by Toll Brothers Inc. on November 8, 2007.
Nishu Sood (Deutsche Bank):
Relative to the downturn in the early 1990’s, what were the tactics you employed back then to respond to that type of demand softness?
Robert Toll: We are worse now than we were in that period and the tactics that we employed then are the same tactics that we are employing now, which is primarily to offer special incentives on any speculative inventory that we have, but not so much as to cut into the value that we evaluate the ground as having.
Ray Holman (JPMorgan):
Any comments on the tower business?
Robert Toll: Function and demand is strong though it took us longer to complete than we should have and it gave some the opportunity because we had exceeded the time period in the agreement of sale to walk.
Ray Holman (JPMorgan):
On the local market, will there be a lot of F-minus''?
