Rough Q4, but Toll Bros. expects stronger 2014

Fourth-quarter earnings for Toll Bros. declined 77 percent from the same period a year ago, the Horsham-based luxury-home builder said Tuesday.

Toll said it earned $94.9 million, or 54 cents a share, in the quarter ended Oct. 31, compared with a profit of $411.4 million, or $2.35 a share, a year earlier.

Deferred tax-asset valuation allowance reversals fell to $4.6 million last quarter, compared with $394.7 million the year before, the builder said.

Pretax income for the quarter was higher than the same period in 2012, Toll said, as sales, revenues, and average prices climbed above those previous-year figures.

In a wide-ranging interview Dec. 5 at the company's Horsham headquarters, CEO Douglas Yearley Jr. attributed issues related to consumer confidence, including June's spike in interest rates and increasing new-home prices, for a "flat but not backward" housing market of the last six months .

"Remember that these are our buyers' third or fourth houses [they've owned]," he said, and "the issue of rising interest rates affect those who have houses to sell" before they can buy from Toll.

"Buyer confidence, therefore, remains fragile, and people are sitting on the sidelines to see where rates will go," said Yearley, who took over as CEO from Robert I. Toll - now executive chairman - in June 2010.

All builders, including Toll, "have been raising prices aggressively in the last 18 months," he said, and with construction well below the 1.5 million units in normal years and supply of homes low, "there is an opportunity for significant price appreciation."

The average price of homes delivered in the quarter rose to $703,000, up from $582,000 in the fourth quarter of 2012.

When rising prices are combined with higher interest rates, many buyers are "sitting back to see what will happen," Yearley said. "We don't feel the way we did in February and March, when we were rocking and rolling."

That said, Yearley and Toll are predicting a banner 2014. The builder's fiscal year has been underway for more than a month and higher sales reflect that, the CEO said.

Yearley said the economy will continue to improve, and that will give consumer confidence a big shot in the arm.

An important indicator is net signed contracts - the value of which rose 23 percent to $839 million year-over-year.

Toll's backlog was up 57 percent to $2.63 billion, or 43 percent to 3,679 units.

Fiscal 2013 net income was $170.6 million, or $0.97 per share, compared with the previous year's $487.1 million, or $2.86 per share, Toll said.

Fiscal 2013's pretax income was $267.7 million, compared with 2012's pretax income of $112.9 million, the builder said.