Toll Brothers, a leading builder of luxury homes, said Friday that its signed contracts fell 29% in its second fiscal quarter, and it cut its forecast for the number of homes it expects to sell in fiscal 2006.
USA Today
For the three months ended April 30, Toll projected preliminary contracts of roughly $1.56 billion, down from $2.2 billion in the year-ago period. Backlog for the quarter rose 3% to roughly $6.07 billion.
Toll Brothers also forecast it would deliver 9,000 to 9,700 homes for the fiscal year ending Oct. 31, down 200 from its previous outlook. It was the third time since November that Toll slashed its forecast for the number of homes it expects to sell in the year.
The company, which operates in 21 states from New York to California, attributed the drop in contracts and deliveries to a greater supply of homes resulting from a drop in speculative buyers, and more cancellations from non-speculative buyers. The cancellation rate over the recent quarter was 8.5%, higher than Toll’s historic average of about 7%.
“I think the Street was looking for weakness, just not this weak,” said John Tomlinson, senior analyst with Majestic Research an independent research firm.
Higher home prices and mortgage rates have taken its toll on U.S. home buying, which began to soften after the summer. Since July, shares of Toll Brothers have lost 47% of their value, as its high-end customers are considered more knowledgeable about the housing market and have more discretion not to trade-up from their existing homes.
New orders, excluding ones from its joint ventures, fell to 2,167 from 3,181, while the value of the contracts declined 29% to $1.56 billion. Orders fell sharply in Toll’s biggest market — the Mid-Atlantic states of Delaware, Maryland, Pennsylvania and Virginia — where they were off 45%.
“Speculative buyers are no longer fueling demand,” Robert Toll, chairman and chief executive, said. “Instead they’re putting the homes they’ve recently acquired back on the market, or are canceling contracts in mid-construction.”
He said the oversupply is being “aggressively discounted by others.”
Toll said revenue for the quarter ended April 30 rose 18% from a year ago to $1.44 billion. Analysts, on average, expected $1.45 billion, according to Reuters Estimates. Quarterly revenue reflects orders taken about one year ago.
The Toll forecast came after rival Hovnanian Enterprises lowered its second-quarter forecast on May 1 because of an expected 20% decline in contracts
