Homebuilder Toll Brothers expected to report fiscal 4th-qtr loss despite spike in contracts

Earnings Preview: Toll Brothers

LOS ANGELES — Luxury homebuilder Toll Brothers Inc. reports its fiscal second-quarter results before the stock market opens Wednesday.

WHAT TO WATCH FOR: Word that home orders and completed sales rose during the quarter and any outlook from management on sales for the second half of the year.

Builders have seen sales and home orders improve this year thanks to low mortgage rates and homebuyer tax credits. In March, new home sales nationwide posted the biggest monthly increase in 47 years.

The tax credits expired in April, however, and many experts project home sales will weaken at least in the near term. Building permits, an indicator of future construction, plunged nearly 12 percent in April, suggesting builders are already bracing for a dip in demand.

Because it caters to luxury buyers, Toll hasn’t benefited from the first-time homebuyer tax credit as much as rivals selling smaller, more affordable homes. It also won’t see a significant downside now that the government incentive has ended.

Toll saw orders rise in the November-January quarter versus what was a very weak prior-year quarter, while its completed sales dropped 10 percent. The builder will have a tougher comparison in the February-April period, but Wall Street is expecting the company will report an increase in home orders.

Citigroup Inc. homebuilding analyst Josh Levin points to decent sales this spring and signs consumer confidence among high-end homebuyers has improved.

Still, while home prices in the low-end of the market appear to have hit bottom in many markets, prices are expected to drop further in the high-end, especially if the economy stumbles. That could put off luxury home buyers.

Regardless, Toll has positioned itself for the eventual recovery of the market. It has been taking advantage of cheaper land prices to buy new parcels for future homes and gaining market share as smaller rivals have gone out of business.

Meanwhile, the builder recently announced a major executive shuffle.

Co-founder Robert Toll will step down from the CEO post on June 16 after more than four decades. He will be succeeded by Douglas Yearley Jr., the builder’s executive vice president. Toll will stay on as executive chairman and continue to be involved in major company decisions, but in an advisory role.

WHY IT MATTERS: Toll Brothers, which is based in Horsham, Pa., has operations in 20 states and is the nation’s largest builder of luxury homes. Housing and the broader economy began to emerge from a deep trench last year, but high unemployment and tight mortgage lending remain hurdles to a full recovery.

WHAT’S EXPECTED: Analysts polled by Thomson Reuters expect Toll to post a loss of 23 cents a share on about $322 million in revenue. The company has reported a loss in the past 10 consecutive quarters.

LAST YEAR’S QUARTER: Toll reported a loss of $83.2 million, or 52 cents a share, on revenue of $398.3 million.

Online:

Toll Brothers: www.tollbrothers.com