Homebuilder Toll Brothers, Inc. (NYSE: TOL) reported third fiscal quarter earnings this morning, managing to post EPS of $0.25 on revenue of $394 million. Analysts were expecting EPS of $0.03 on revenue of $404 million. The company’s results were bolstered by a tax benefit worth $38.2 million. Absent that, profits came in at $3.9 million, or about $0.02/share.

For the quarter, Toll Brothers sold 693 units, down from 803 in the same period a year ago. Contracts increased slightly year-over-year, from 701 in 2010 to 713. Backlog also increased, from 1,636 units in the same period a year ago to 1,780. Toll Brothers builds higher-priced homes and has been somewhat insulated from the turmoil at the lower-priced end of the market. However market volatility in the last few weeks could cause the company some more problems going forward.

Toll Brothers was not among six builders that received ratings upgrades earlier this month. NVR Inc. (NYSE: NVR), PulteGroup, Inc. (NYSE: PHM), M/I Homes, Inc. (NYSE: MHO), Ryland Group, Inc. (NYSE: RYL), D.R. Horton Inc. (NYSE: DHI), and Beazer Homes USA Inc. (NYSE: BZH).

The number of foreclosed homes either on the market or in the line to come onto the market remains very high. There has been a delay in processing foreclosures, and once that delay ends, the number of foreclosed homes is expected to jump again. Pricing pressure on new homes will follow.

The sort-of good news for the homebuilders is that this flow of foreclosures is not expected to hit the market until 2012. That’s some help to the builders for the rest of this year, but not much.

Toll Brothers guided deliveries for the full fiscal year at 2,475-2,675 homes, compared with an earlier estimate of 2,300-2,800. The company’s first estimate for new home sales was 2,100-2,900. In the 2010 fiscal year, Toll Brothers sold 2,642 units, a drop of -11% from 2009.

The market for new houses is weak, and there is really no good reason for optimism. A slow-growth economy combined with high unemployment and an abundance of foreclosed properties don’t forecast a sunny outlook for the homebuilders going into 2012.

Shares of Toll Brothers are up about 0.4% in the pre-market this morning, at $14.80. After posting a new 52-week low yesterday, the stock’s 52-week range is $14.59-$22.42. To indicate the abiding hope for the housing market, Toll Brothers trailing P/E ratio is nearly 41. The SPDR S&P Homebuilders ETF (NYSE: XHB) closed yesterday at $13.49, near the bottom of its 52-week range of $13.05-$19.21.

Paul Ausick

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