Jones Lang LaSalle

Toll Bros. 4th-Quarter Profit Soars, Tempers Outlook
By THE ASSOCIATED PRESS
Filed at 4:39 p.m. ET

PHILADELPHIA (AP) -- Toll Brothers Inc., a leading builder of luxury homes, said Thursday its fourth-quarter profit rose a record 72 percent, but cautioned that next year's profits could fall short of Wall Street's expectations as the housing market slows down.
Shares of Toll Brothers rose $1.25, or 3.6 percent, to close at $35.55 Thursday on the New York Stock Exchange.

The Horsham-based company said home sales have weakened because of a decline in confidence among its upper-income customers, a cumbersome regulatory process that constricts home building, and the housing market's inability to sustain its red-hot growth of recent years.
The company's prediction added to a growing body of evidence that the real estate market, which has helped fuel a portion of the economy's growth, was showing signs of slowing down.
The increases ''of 2004 and most of 2005 were not sustainable and were fueled in part by speculation,'' Robert Toll, chairman and chief executive, said during a conference call with analysts. ''Housing demand is returning to more normalized levels of the decade -- from 1994 to mid-2003 -- before home prices really took off in quite a few markets.''

Toll Brothers said California was its weakest market in the quarter and the only region that showed a decline in the number of closings, contracts and order backlog. The builder's strongest market was the Southeast, comprising Florida and the Carolinas.

In the mid-Atlantic states of Pennsylvania, Delaware, Maryland and Virginia, closings rose by 16 percent while contracts fell by 10 percent and the backlog went up by 5 percent.

Lawrence Horan, an analyst with Janney Montgomery Scott, said the housing market is not headed for a crash but will return to a more typical pattern of moderate growth.

''This is a soft landing,'' he said. ''Previously hot markets such as South Carolina, Las Vegas, Phoenix and Washington, D.C., that have had double-digit price increases should see modest increases'' while catch-up markets such as Texas and Denver could do better.
He said home sales are driven more by employment trends than mortgage rates, which he expects would creep up to the mid- to high-7 percent range.

For the fourth quarter, Toll Brothers recorded profits of $310.3 million, or $1.84 per share, in the three months ended Oct. 31, up from $180.6 million, or $1.11 per share, a year ago. Revenue climbed 40 percent to $2.02 billion from $1.45 billion last year.

Analysts surveyed by Thomson Financial expected earnings of $1.65 per share on sales of $2.02 billion. The company said the quarter's results were the highest for any quarter in its history.
A Credit Suisse First Boston report released Thursday said the dollar value of Toll Brother's home orders rose by 4 percent in the quarter, the slowest growth since the second quarter of 2003.

For the full year, the homebuilder's earnings doubled to $806.1 million, or $4.78 per share, from $409.1 million, or $2.52 per share, last year. Revenue rose to $5.79 billion from $3.86 billion.
Analysts forecast earnings of $4.59 per share on revenue of $5.81 billion for the year.

Horan said lower selling, general and administrative costs and higher-than-expected revenue from joint ventures helped boost Toll Brothers' quarterly profit.

For fiscal 2006, however, the homebuilder is forecasting earnings of $4.79 to $5.27 per share, including 11 cents per share for stock options expense, on revenue of $6.65 billion to $7.25 billion. Analysts expect a profit of $5.25 per share on $6.74 billion in revenue.

The company, which last month cut its 2006 sales forecast, said its outlook assumes deliveries of 9,500 to 10,200 homes, at an average price of $670,000 to $680,000 per home. It also expects $280 million to $300 million in revenue from four high-rise towers.

For fiscal 2005, it reported 8,769 homes closed at an average price of about $657,000.

On Wednesday, the UCLA Anderson Forecast, an economic research group, pointed to the decline in housing starts in October as a sign the sector is cooling.

After reporting fourth-quarter earnings that beat Wall Street's expectations on Wednesday, homebuilder Hovnanian Enterprises, of Red Bank, N.J., also noted that ''the pace of housing demand and price increases may moderate over the short term.'' However, the industry's long-term fundamentals remain solid and would boost profits for next year.

Toll said it expects ''record results'' in fiscal 2007 on expected demand and projected community growth, but noted ''these are uncertain times and results could prove better or worse than the previous guidance we gave of 20 percent growth for fiscal 2007.''

The company said it would provide more detailed guidance for fiscal 2007 later in the year. Analysts forecast a profit of $5.55 per share on revenue of about $7.4 billion.