NEW YORK - Toll Brothers Inc., the nation's largest builder of luxury homes, reported its first quarterly loss in 21 years yesterday as the housing downturn that the company called the worst in four decades deepened.
"By many measures, fiscal 2007 was the most challenging of the 40 years that Toll Brothers has been in business," Chairman and Chief Executive Officer Robert Toll said in a statement. "1974 was perhaps rougher, but the difficult times only lasted one year."
Toll, based in Horsham, Pa., reported a loss of $81.8 million, or 52 cents per share, in its fiscal fourth quarter, compared with net income of $173.8 million, or $1.07 per share, a year ago.
The company booked a charge of $314.9 million in write-downs, mainly for homes it could no longer sell at a profit.
Without the write-downs, the company would have posted profit of 72 cents per share, less than half the $1.49 per share profit that was posted during the same quarter a year earlier.
The loss was narrower than expected on Wall Street, where analysts polled by Thomson Financial estimated a loss of 77 cents per share.
Revenue fell 35 percent to $1.17 billion in the quarter ended Oct. 31, slightly ahead of Wall Street's forecast of $1.166 billion. Net signed contracts fell by 48 percent to $365.3 million - a measure of future sales activity.
The housing market, after booming for several years, is now in its third year of decline, plagued by excess inventory, defaults in subprime mortgages and tightening of credit as lenders become choosier about borrowers. Home prices have been falling in most major markets around the country.
Now, investors are hoping that a plan crafted by the Bush administration and the mortgage industry to freeze adjustable interest rates on troubled subprime loans will stabilize housing prices and give homebuilders a brighter spring.
Toll shares surged $2.70, or 13 percent, to $23.42 yesterday, amid a broader rally in the sector on the White House announcement.
The S&P 500 Homebuilders index climbed more than 13 percent yesterday, setting a one-day record, according to S&P. The group is still down nearly 59 percent from a year ago.
The administration's effort is aimed at stemming a further tidal wave of foreclosures in coming years as 2 million subprime mortgages reset to higher rates. President Bush and lenders were moved to act over concern that a surge in defaults could deepen the housing slump and drag the economy into recession.
The plan overshadowed an industry report that home foreclosures surged to an all-time high in the July-September period.
Robert Toll said he didn't think much of the White House plan and that odds are there will be a recession.
"If I had to make a bet on recession or no recession right now, I'd probably think that we're going to have a recession," he said in a conference call with investors. Toll said Bush's plan should have capped all adjustable mortgages, not just those likely to foreclose.
But the executive was optimistic that recent nationwide price declines and relatively low interest rates have created a buyer's market.
"It's not a matter of if, but a matter of when, this oversupply is absorbed," Toll said. "I believe those who wanted to buy but didn't will kick themselves for their reticence."
The company said it has streamlined operations to better match reduced business, and that "pent-up demand has been building."
He said customers willing to buy the bigger homes that his company sells are having trouble selling their existing homes.
"Their primary holdback is their inability to sell their old home - not that they're going to buy and then prices are going to fall," he said.
But many economists have said 2008 will be worse than 2007 for the housing sector, with home prices likely to fall further.
Toll Brothers said the market is too volatile to provide earnings guidance. However, the company expects to deliver between 3,900 and 5,100 homes in fiscal 2008 at around $630,000 to $650,000 per home.
For its fiscal year, the company posted net income of $35.7 million, or 22 cents per share, compared with profits of $687.2 million, or $4.17 per share, in 2006. Revenue fell 24 percent to $4.65 billion.
Net signed contracts dipped 33 percent to $3.01 billion. *