Is Robert Toll's Honesty Keeping Shares Above Water?

Take a look at a few recent quotes from Toll Brothers (TOL) CEO Robert Toll:

From MarketWatch (5/13/08):

 "When we have held promotions, buyers have come out to play and put down deposits. Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm and they don't take the next step of going to contract," said Toll, the CEO. "They, like all of us, read the papers and watch TV, both of which keep advising them that home prices are declining."

Conference Call Transcript (6/3/08):

 “Demand continues to be weak in most markets as our clients worry about selling their existing homes or entering the market before prices stabilize.”

“We believe Congress should jump-start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices. As we have said before, we favor a tax incentive for all those who buy homes within nine months of the Bill's passage; this would create a sense of urgency. Interest rates are low, supply is abundant and a buyer's market prevails. With a little motivation, the new home market could turn around, which would have a very positive impact on banks, bond prices and many other areas of the economy. Once home prices stabilize, Congress could then more successfully address mortgage issues; however, without stabilization of home prices, trying to address mortgage issues may be difficult at best.” 

From the AP, (6/4/08):

 "Can the market go down another 10 or 20 percent? Sure." 

 "There's a whole bunch of them [materials] that's oil based ... I see costs going up from here. So we're caught in a squeeze. Certainly, our clients aren't going to pay more money because our costs our going up." 

From a CNBC interview during the Bank of America Homebuilders Conference (6/19/08):

 “What I found is a market that was slow.” [after visiting project sites] 

Paraphrasing here- “The U.S. Census Bureau is overstating the action in the market by 1/3” – referring to the U.S. Census apparently not including cancellations in a down market. 

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As for the market Wednesday, May new home sales came in at 512,000 - a bit below expectations. And there is still no sign of any forthcoming strength here.

The question I ask is: Does Bob Toll’s straightforwardness have something to do with holding Toll Brothers over $20/share? Over the past year TOL has beaten the (maybe I shouldn’t use that word—more like has not sustained a loss as large as the…) XHB index. Stuart Miller, CEO of Lennar (LEN) has deemed the market as challenging and difficult as well, and Lennar’s stock has plummeted to another level compared to TOL. Both have been increasing cash on the balance sheet and TOL has been paying down some long term debt.

So, do you attribute the somewhat remarkable sustainability of TOL to Mr. Toll or is this just a perk of being a top ‘best of breed’ (if there is one right now) U.S. homebuilder? Or is it just a matter of time until their inventory/sales ratio catches up to the stock?

Comments

[User 184395]

I appreciate a straight talking CEO. It is refreshing. However, I think the markets give way too much creadance to what CEO's says. If you look back less than 2 years ago, Toll was telling his folks to find more land. What does that tell you?

[User 20228]

let's not give bob too much credit - we can't forget the "beating your wife" question series - classic

[jimsep]

There is no doubt that Toll's candor has resulted in a better valuation for the stock.

That is offset by the changes he made to his compensation package, which in addition to being very generous, is now more certain, regardless of profits

[Reinhard]

I thought the two main reasons commonly cited were that the high-end people wouldn't be affected, and that TOL was continuing to develop while the other homebuilders were taking write-offs. Both reasons would make TOL rather more vulnerable going forward.

[privateequity]

Price stabilization??? Cough, cough. He worries about price declination, but he forgot to mention how he recently slashed prices on standing inventory and severly reduced the base price of homes. The existing residents in Toll communities got screwed (yes, I being one of them). Toll can't get folks to commit so let's get Congress to approve incentives? Bob also forgot to mention how he raised prices by $100k across-the-board in early '05 - the beginning of this debacle. Well, the good news is that Bob probably won't be selling any shares for awhile, lol.

[Eric Fox]

As long as we are throwing quotes around here is an interesting one from the LEN call yesterday:

"...aggregate levels of impairment and losses are more the nature of clean up rather than reconciliation to unknown market conditions. We have done the heavy lifting on impairment and are now situated with stated assets that can and will produce improving margins when the rate of declining market pricing subsides. We are very confident that even with continued degradation of market conditions our stated asset base will not suffer nearly the levels of impairment we saw in 2007."

[User 151885]

Just to refresh everyone's files I would point out Mr Toll's honesty has resulted in him selling more stock at 4 times his excercise price.
Is he using up-beat language to prop up the price of Toll stock?
I commented recently on Nortel using up-beat language promoting stock as in 2000 and lo and behold another significant correction in price. (I believe about 50%)
It's amazing how long an infection can last, don't you think?