Toll Brothers Unprecedented Weakness & Unmitigated Disaster

Discussion in 'Stocks' started by ByLoSellHi, Feb 22, 2007.

  1. Just remember, if Toll is saying things are bad, things are 10x worse than what lies on the surface.

    Toll Rings Bells of Caution


    By Nicholas Yulico
    TheStreet.com Staff Reporter
    2/22/2007 2:29 PM EST


    Updated from 12:27 p.m. EST


    http://www.thestreet.com/_dm/newsanalysis/businessnews/10340271.html


    Toll Brothers (TOL - Cramer's Take - Stockpickr) offered investors cautious comments about the state of the housing market, saying Thursday that it doesn't yet see an upturn and signaling that selling conditions have deteriorated somewhat in February.

    The outlook came as the luxury-home builder reported a 67% drop in fiscal first-quarter profits and lowered its full-year outlook amid continued weak housing sales.

    Shares of Toll recently were down 79 cents, or 2.4%, to $32.07.

    In a statement, CEO Robert Toll said there are too many soft markets to call a general upturn in the new home market. "Demand varies greatly from week to week in individual markets," he said.

    Bank of America analyst Daniel Oppenheim said he views Toll's comments as less positive than two weeks ago, when the builder reported its orders for the quarter and signaled an uptick in demand in January and early February.

    "We think this [less-positive commentary] is a reflection of choppy market conditions and the soft traffic at the start of the spring season, consistent with what we have seen in early results of our February Survey of Real Estate Agents," Oppenheim wrote in a research note Thursday.

    On the company's earnings conference call, Robert Toll addressed the fact that his comments in the release seemed to suggest that the market had gotten worse.

    "We were a little more disappointed than we were two weeks ago," Toll said on the call. Presidents Day's weekend had "good sales, but not anywhere near the bump that we'd typically see," Toll said.

    The weeks preceding and following Presidents Day weekend are the best periods of the year for the new home business, Toll explained. He also added that California is now a "B" or "B plus" market and not the "A" level of two weeks ago.

    For the quarter ended Jan. 31, Toll earned $54.3 million, or 33 cents a share, down from $163.9 million, or 98 cents per share, a year earlier. Analysts expected earnings of 29 cents a share, according to Thomson Financial.

    The earnings beat mostly stemmed from lower-than-expected land charges and higher margins, said Oppenheim.

    Land charges totaled $96.9 million, within the company's prior guidance of $60 million to $160 million. The charges relate to write-offs and writedowns of unprofitable land that Toll either owns or has options to buy.

    Excluding writedowns and the impairment charge, first-quarter earnings per share were down 27% to 72 cents.

    New home orders fell 33% to 1,027 units. The steepest drop came in the Western region of the U.S., where orders fell 65% from a year earlier amid particular weakness in Arizona, California, Colorado and Nevada.
     
  2. gaj

    gaj

    i just saw on cnbc where toll said something like "the suburbs aren't good, but the exurbs outside of new york city - like dutchess county - we're selling at record highs" and some other stuff.

    well, that's not true at all. i know a real estate agent of 20 years, things aren't good. a bunch of developers up in dutchess have "delayed" their projects because too many unsold NEW (ie. similar to toll) units are just sitting there with no one to buy.

    http://www.poughkeepsiejournal.com/apps/pbcs.dll/article?AID=/20070206/NEWS01/70206013/1006/NEWS01

    http://www.poughkeepsiejournal.com/apps/pbcs.dll/article?AID=/20070207/BUSINESS/70207015/1003

    <i> Gunther, who sells real estate part time, said with about 200 upscale homes for sale in the towns of Beekman and Fishkill alone, he can see why Sharbell is holding off on sinking millions of dollars into construction of the Springs homes.

    “Since you have 200 homes on the market which aren’t selling, what makes you think these 200 are going to sell?” he said.</i>

    right smack in dutchess county.
     
  3. Toll Brothers Management Meeting:

    [​IMG]
     
  4. gaj

    gaj

    TOL shareholders really should sue the company, esp. after the president's comments over the past year+.

    <i>Nearly two years later, only 15 homes have been built in what had been billed as "A Grande New Neighborhood," including a few models. Two have "Available Immediately" signs on their new lawns. Two owners — who both moved to the Grande from elsewhere in Sullivan County — say they bought their model homes, furniture included, at reduced prices: $319,000 for a $355,000 home; $400,000 for one listed at $435,000. They also got a couple of extras they didn't bargain for: a huge common backyard of about 60 acres of cleared land, and a neighborhood so quiet you can hear a sprinkler spritzing new grass.</i>

    that developer is dr horton, but toll has some stuff on the map at the link. you really should check this out because you can click on and see how the 'new' home developers' lots aren't doing so well.

    i know that others (to the east of the hudson, outside this daily paper's covered area) are doing just as poorly.

    http://www.recordonline.com/apps/pbcs.dll/article?AID=/20070805/NEWS/708050346
     
  5. danoXP

    danoXP

    Wow. I had no idea these guys were in NYC metro area.

    Amazing that they see a demand in an area hard hit from IBM shrinkage over the past 10 years.
     
  6. What is unique in homebuilding versus other industries is that size doesn't protect you from going bankrupt. It can prolong it but in the end big builders can go under just like small builders.

    The reason is because there are no economies of scale in homebuilder that protect you when the market heads south.

    Size only matters when business is good because they can get bigger lines of credit to buy more land and options on land.

    When business gets bad they are just as stuck with unperforming assets as any small builder is except on a much bigger scale.

    Homebuilding is a linear business. What I mean is the only way to have more sales is to have more subdivisions. Their is no vertical intergration available in homebuilder other then doing your own land development and having your own mortgage company.

    The problem is, all those levels are too tightly correlated. Once business gets bad there is no reason to develope more land and there are fewer mortgages orginated.

    I worked for a huge builder once that eventually went bankrupt. It would have happened much faster then it did but the banks were reluctant to pull the plug on so much debt so it took a couple years longer then it would have for a small builder.

    I would not buy any homebuilders. Some of the these big guys will likely go bankrupt. Toll, Ctx, Geezer homes, are all skating on thin ice.

    John
     
  7. i thought they were dancing on the bottom according to toll brothers:D
     
  8. "What is unique in homebuilding versus other industries is that size doesn't protect you from going bankrupt. It can prolong it but in the end big builders can go under just like small builders.

    The reason is because there are no economies of scale in homebuilder that protect you when the market heads south.

    Size only matters when business is good because they can get bigger lines of credit to buy more land and options on land.

    When business gets bad they are just as stuck with unperforming assets as any small builder is except on a much bigger scale.

    Homebuilding is a linear business. What I mean is the only way to have more sales is to have more subdivisions. Their is no vertical intergration available in homebuilder other then doing your own land development and having your own mortgage company.

    The problem is, all those levels are too tightly correlated. Once business gets bad there is no reason to develope more land and there are fewer mortgages orginated.

    I worked for a huge builder once that eventually went bankrupt. It would have happened much faster then it did but the banks were reluctant to pull the plug on so much debt so it took a couple years longer then it would have for a small builder.

    I would not buy any homebuilders. Some of the these big guys will likely go bankrupt. Toll, Ctx, Geezer homes, are all skating on thin ice.

    John"

    Wise advice. Most leveraged to the hilt to take advantage of growth, and now they will pay the consequences for their greed!)
     
  9. But Cramer said they were Land BANKS!

    Cramer is never wrong.
     

  10. US Home went from thinking it had a land bank for 3 years to seeing that it had one that would last 10. We had over 10000 lots in New Orleans and we were selling maybe 50 homes a year from a high just a few years earlier of 800 homes a year.

    Plus, these builders get sued all the time. Typically it is for shitty contruction etc. This time however I would guess that tons of representations were made verbally to buyers at the height of the frenzy about how much the homes were going to be going up in value. What great "investment" it was etc. These big builders put mostly kids in the sales offices because all they were doing was showing houses and taking deposits. No telling what all was said etc.

    Watch for all the lawsuits to start coming out now about how the builder misrepresented the future value etc.

    John
     
    #10     Aug 5, 2007