Toll Brothers Inc., the largest U.S. luxury-home builder, reported a bigger-than-expected loss in its fourth quarter after revenue fell faster than costs.
Its net loss for the three months that ended Oct. 31 widened to $111 million, or 68 cents a share, from $79 million, or 49 cents, a year earlier, the Horsham, Pa., company said Thursday. Analysts surveyed by Bloomberg had predicted a loss of 44 cents a share, on average.
Like other home builders struggling to weather the housing crash, Toll Brothers has focused on selling properties in fewer communities, building up cash reserves and writing down the value of inventory to improve liquidity.
"Toll got order numbers up by slashing prices," said Michael R. Widner, an analyst at Stifel Nicolaus & Co. Inc. in Baltimore. "The company's not operating with a positive margin."
Its share price dropped as much as 5.5%, to $18.42, but rebounded to $18.50 Thursday midmorning.
Closed sales may fall by as much as 33%, to 2,000, in the fiscal year through October 2010, Toll Brothers said.
The average selling price may decline to as little as $540,000, and the cost of sales and administration will probably grow next year from the current 18.3% of sales as the number of units sold decreases, the company said.
This forecast paints an overly bleak picture, Carl Reichardt, an analyst at Wells Fargo Securities LLC in San Francisco, wrote in a note after the earnings release. The company is being "conservative" in its outlook, he said. He had upgraded the stock to "outperform," from "market perform," on Nov. 11.
"We believe it may take some time for Americans to regain confidence in our economy, their job status and the benefits of home-ownership," Chief Executive Officer Robert Toll said in a press release. "Currently, we anticipate a gradual recovery in housing, similar to the one that occurred over several years coming out of the … recession in the early 1990s."
New-home construction industrywide has been hurt by rising numbers of foreclosed properties coming onto the market.
"Toll hasn't talked about the wave of foreclosures coming its way," Widner said.
The Stifel analyst, who has a "sell" rating on the stock, said margins on home sales fell short of his forecast, a trend that could persist as more high-priced homes enter foreclosure.
Fourth-quarter costs fell 23%, to $592 million, from a year earlier, but revenue declined 30%, to $486.6 million.
Toll Brothers wrote down the value of its property and work in progress by $85.5 million in the quarter, down from $176 million a year earlier.
Pretax results, excluding writedowns and costs to pay off debt early, left Toll Brothers with a quarterly loss of $9.6 million compared with a year-earlier profit of $69.9 million.
Its new-home orders rose 42%, to 865 units, in the quarter, and their value grew 62%, to $430.8 million, the company said on Nov. 10. Nationwide, new-home sales rose to an annual pace of 430,000 in October, a 6.2% rise from September, the Commerce Department reported Nov. 25.
Sales were up 5.1% from the year earlier, the first year-on-year gain since November 2005.
The average value of a contract for a Toll Brothers home in the quarter grew to $563,000, from $495,000 a year earlier. This contrasts with the national average, which fell to $212,200 in October, from $213,200 a year earlier, the Commerce Department said.