Toll Brothers swings to hefty 2Q loss on write-downs

PHILADELPHIA -- Luxury-home builder Toll Brothers Inc. on Tuesday posted a second-quarter loss that was smaller than Wall Street expected, as a hefty write-down driven by joint ventures was offset by other income.

Shares of Toll Brothers rose 2.8 percent, or 58 cents, to $21.54 in morning trading.

Chief Executive Robert Toll said demand continues to be weak in most markets as buyers stay skittish in the face of continued home price declines.

He said the company will continue to offer incentives to get people to buy homes -- a concession uncharacteristic of Toll Brothers that speaks to the severity of the housing market.

But Deutsche Bank analyst Nishu Sood said the builder should more aggressively discount because "by holding prices the company is just delaying the inevitable as prices are unlikely to revisit boom time levels for a prolonged period."

The company hasn't written off as much as other builders, and as such has a higher share of these charges to come, he wrote in a research note.

For the period ended April 30, Horsham, Pa.-based Toll has reported a loss of $93.7 million, or 59 cents per share, compared with year-ago profit of $36.7 million, or 22 cents per share.

The quarter included a pretax write-down of $288.1 million, which included $85 million from joint ventures with other builders on land development.

Toll also posted $40.2 million in gains from a property condemnation procedure, in which municipalities compensate landowners for taking their parcels to develop parks and other projects.

Without these charges and gain, Toll earned $81.3 million, or 49 cents per share, compared with $109.6 million, or 66 cents, a year ago.

Revenue fell 30 percent to $818.8 million from $1.17 billion last year.

Analysts surveyed by Thomson Financial expected a loss of 89 cents per share including charges on sales of $818.5 million.

Net contracts, an indication of future business, fell by 58 percent to $496.5 million in the quarter from a year ago. Cancellations totaled $234.1 million, down from $274.7 million last year.

The average home price on net contracts fell to $534,000 from $710,000 in 2007's second quarter.

Geographically, sales fell 45 percent in the southern states of Florida, Georgia, the Carolinas and Texas. The mid-Atlantic, covering Pennsylvania, Delaware, Maryland, Virginia and West Virginia, declined by 39 percent. The west, comprising California, Arizona, Colorado and Nevada, was down 28 percent.

Toll's northern region of New Jersey, New York, Connecticut, Rhode Island, Illinois, Massachusetts, Michigan and Minnesota fell 3.3 percent.

Net contracts fell 79 percent in the north, 62 percent in the west, 44 percent in the mid-Atlantic and 31 percent in the south. But the housing meltdown isn't affecting Manhattan, where Toll said homes have temporarily sold out.

The company said its backlog at the end of the second quarter totaled $2.08 billion, down 50 percent year-over-year.