This summary is based on the second quarter fiscal 2007 earnings call conducted by Toll Brothers Inc. (TOL) on May 24, 2007.
Chairman and Chief Executive Officer: Robert Toll
Chief Financial Officer: Joel Rassman
Senior Vice President of Finance and Investor Relations: Frank Cooper
Chief Accounting Officer: Joe Sicree
Chief Marketing Officer: Kira McCarron
AVP of Finance: Greg Ziegler
Key Investors Issues
- Earnings per share fell to 22 cents compared to $1.06 in prior year.
- Revenue rose to $1.17 billion from $1.44 billion in last year.
- For the first six months of 2007, net income was $91 million versus record results of $338.8 million in prior year.
Second Quarter Fiscal 2007 Financial Highlights
The second quarter fiscal 2007 net income was $36.7 million or 22 cents per share diluted compared to fiscal year record of $174.9 million or $1.06 per share in prior year.
The net income was reduced by after tax write-downs of $72.9 million or 44 cents per share. In the prior year second quarter, after-tax write-downs totaled $7.3 million or 4 cents per share. Excluding write-downs, the earnings were 66 per share compared to $1.10 in prior year.
For the second quarter, total revenues were $1.17 billion compared to record revenues of $1.44 billion in fiscal year 2006.
During the quarter, Toll Brothers delivered 1,686 homes at an average price of $666,000. Second quarter cost of sales, before write-offs and interest, was 73.1% and after write-offs but before interest was 83.8%. Pre-tax write-offs were approximately $119.7 million or 10.6% of revenues compared to $12 million of write-offs in the second quarter of last year, which was 0.9% of revenues. Approximately $116.1 million of the write-offs were related to active communities or owned land while approximately $3.6 million was related to options for future communities.
The main impairments were in the North at $49.5 million principally in Illinois and Michigan, in the West at $53 million principally in California and Arizona and in the South at $16.4 million principally in Florida. The firm recognized $48.4 million of percentage of completion revenues with a 77% pre-interest cost of sales. Toll Brothers delivered 164 homes in these buildings. Construction during this quarter related to these buildings was somewhat slower than anticipated as well as somewhat more costly.
The second quarter end backlog was $4.15 billion compared to the second quarter record backlog of $6.07 billion in fiscal year 2006.
For second quarter of fiscal 2007, net signed contracts were $1.17 billion, a decline of 25% compared to last year’s total of $1.56 billion.
The firm signed 2,031 contracts before cancellations, a 14% decline from the 2,372 signed in last year. Net of cancellations, second quarter contracts totaled 1,647 units, down 24% from 2,167 units in the second quarter of fiscal year 2006. Second quarter fiscal year 2007 cancellations totaled 384 units versus 436 units in first quarter fiscal year 2007 and 585 units in fourth quarter fiscal year 2006. The second quarter cancellation rate of 18.9% was lower than its first quarter cancellation rate of 29.8% and the 36.9% cancellation rate in its fourth quarter 2006. However, it was still well above the company’s historical average of about 7%.
In what generally remains a soft market, there are glimmers of strength in certain territories.
Manhattan, Brooklyn and Queens in New York City, Jersey City and Hoboken in New Jersey are strong markets. Southern Connecticut and Duchess County, New York are also good. Philadelphia suburbs and Delaware are solid. Raleigh, Austin, Dallas are holding up well as are parts of Northern California, primarily around Silicon Valley.
