Toll Brothers' Profits in Housing, Sort Of (TOL)

Toll Brothers Inc. (NYSE: TOL) managed to post a quarterly profit in its fiscal fourth quarter earnings report this morning.  It sounds great on the headline for a homebuilder to be posting profits.  The problem is that there were declining revenues and that ‘income’ is due largely to a tax benefit.

The higher-end homebuilder reported earnings of $50.5 million, or $0.30 EPS versus a loss of $111.4 million, or -$0.68 EPS a year ago in the same period.  Toll Brothers’ income this quarter included a $59.9 million tax benefit and that would put the loss at -$9.4 billion for the quarter if you back that out.  A year ago it had a tax expense of $4.7 million.

Revenue was down some 17% to $402.6 million, but that was above a Thomson Reuters consensus of $393.7 million.  Deliveries fell by 19% to 700 units. It also signed fewer net contracts of $315.3 million and 558 units in the quarter, which represents a drop of 27% in both the dollar amount and in the number of units.  Toll Brothers ends its Fiscal 2010 with a backlog of $852.1 million and 1,494 units,  a decline of 3% in dollars and a decline of 2% in units over 2009.

Back on October 22, 2010, Toll completed a new four-year unsecured $885 million bank credit facility and it had at year end $799 million available for use and $86 million was outstanding as letters of credit.  The company ends 2010 with $1.24 billion of unrestricted cash and equivalents after it repaid $341.8 million of debt, the restriction of $60.9 million to collateralize letters of credit, and after paying $66.1 million for land purchases.   Wait a second, land purchases?

Toll Brothers shares closed Wednesday at $18.46 with a market cap of about $3.06 billion and its 52-week trading range is $15.57 to $23.67.  The good news is that the losses are getting smaller and smaller.  Just don’t be fooled by the ‘income’ report because tax benefits are not routine operations.

JON C. OGG