Toll Brothers Results Improve

| About: Toll Brothers (TOL)

Toll Brothers Inc. (NYSE:TOL) recorded a profit of $3.4 million or 2 cents per share in the first quarter of fiscal 2011 ended January 31, 2011 in contrast to a loss of $40.8 million or 25 cents per share in the same quarter of the prior fiscal year. Excluding tax benefits of $20.4 million and $16.0 million, the company had reported losses of $17.0 million and $56.8 million for the first quarter of fiscal 2011 and fiscal 2010, respectively.

On a per share basis, the loss of 10 cents in the reported quarter was narrower than 34 cents in the corresponding quarter of prior fiscal. It was wider than the Zacks Consensus Estimate of a loss of 8 cents per share. The narrower loss was attributable to higher revenues, cost-cuts and reduced property impairments.

Revenues in the quarter inched up 2% to $334.1 million, driven by a 7% rise in average delivery prices to $586,000 as home building deliveries fell 4% to 570 units. Cost of revenues ebbed 11% to $282.0 million from $317.5 million a year ago. Impairment charges declined 25% to $25.1 million from $33.4 million in the first quarter of fiscal 2010.

The company’s number of signed net contracts were 548 units, valued at $307.2 million, during the quarter. It was up 4% from 526 units and 5% from $292.1 million in the first quarter of fiscal 2010. The average price of signed net contracts rose 1% to $560,000 from the year ago level. The net signed contracts per community increased 7% to 2.81 units from 2.63 units in the prior-year quarter.

Toll Brothers ended the first quarter with a backlog of 1,472 units, valued at $825.2 million. This reflected a 1% increase in terms of units and a 2% rise in terms of dollars from the year-ago level.

The company’s cancellation rate (cancellations divided by signed contracts) was 5.7% compared with 6.7% in the year-ago quarter. In fact, it has returned to its record level after continuous elevation.

During the quarter, the company has purchased about 1,935 lots for approximately $132 million and ended the quarter with nearly 35,700 lots (owned or optioned) compared with 31,700 lots a year earlier. The company also ended the quarter with 200 units of selling communities compared with 190 units a year ago.

Toll Brothers had cash, cash equivalents and marketable securities of $1.10 billion as of January 31, 2011 compared with $1.24 billion in the year-ago period. The company’s net-debt-to-capital ratio was 17.6% as of the above date compared with 10.8% in the corresponding period a year back.

Toll Brothers anticipates home building deliveries within 2,200 units and 2,800 units for fiscal 2011 at an average price of $540,000 - $565,000. The company also expects to end the year with selling communities between 215 units and 225 units.

Toll Brothers, a Zacks #4 Rank (Sell) stock, is based in Horsham, Pennsylvania. The company engages in designing, building, marketing, and arranging finance for single-family detached and attached homes in luxury residential communities in the U.S. Both of its major competitors, D.R. Horton Inc. (NYSE:DHI) and PulteGroup Inc. (NYSE:PHM) witnessed deterioration in earnings in the most recent quarter.

D.R. Horton depicted a loss of $12 million or 4 cents per share (excluding special items) in the first quarter of fiscal 2011 compared with a profit of $42.8 million or 12 cents per share (excluding special items) in the same quarter of fiscal 2010.On the other hand, PulteGroup showed a wider loss of $165 million or 44 cents per share in the fourth quarter of 2010 compared with $117 million or 31 cents per share in the same quarter of 2010.