Luxury homebuilder Toll Brothers Inc. warned Wednesday morning preliminary second-quarter homebuilding contracts fell 25% to $1.17 billion, and said it will miss the quarterly and annual guidance it issued in February. For the last six months, revenues were about $2.26 billion and net signed contracts $1.92 billion, a decline of 19% and 29% respectively. Cancellations fell to 19% from 30% in FQ1 and 37% in FQ4 2006; CEO Robert Toll said in February the company's historical cancellation rate is about 7%. Toll said it continues to face difficult conditions. The company estimated writedowns of $90-130 million. It said it believes less than 2% of its buyers use sub-prime financing, but that the impact of stricter lending standards arising from subprime problems is "negatively affecting affordability at lower price points. This, in turn, can impact the entire 'housing food chain', including some of our potential customers' ability to sell their existing homes. This, coupled with a lack of buyer confidence, may have served to impede the glimmers of a rebound we had started to see in early February." Toll Brothers plans to report actual Q2 earnings on May 24. Shares are down 5.3% over the last year and 9.4% YTD.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Contrarian Investors Seek Value in Housing • Housing Double Dips Offer Short Opportunities • For Whom the Bell Tolls: Perchance for a Home-Builder?
Stocks/ETFs to watch: Toll Brothers Inc. (NYSE:TOL). Competitors: D.R. Horton Inc. (NYSE:DHI), Pulte Homes Inc. (NYSE:PHM), Lennar Corp. (NYSE:LEN), Hovnanian Enterprises Inc. (NYSE:HOV), KB Home (NYSE:KBH). ETFs: streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), iShares Dow Jones U.S. Home Construction (BATS:ITB)
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