HomeBuilders

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Toll Brothers Jumps as Luxury Home Orders Surge 42%

By Brian Louis and John Gittelsohn

Nov. 11 (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury homebuilder, gained the most since 1992 after orders surged 42 percent in the fiscal fourth quarter, cancellations slowed and revenue beat analysts’ estimates.

“The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving,” Chairman and Chief Executive Officer Robert Toll said in a conference call. “We sense that it is, though slowly.”

The builder focused on reducing unsold inventory and increasing cash to weather the housing recession. The median price for a new U.S. home was $204,800 in September after declining from a record high of $262,600 in March 2007, according to the Census Bureau.

Toll Brothers had been raising prices until September.

“Since Labor Day weekend up to the present, we do not think we have as much pricing power as we had,” Robert Toll said.

The builder’s net contracts climbed to 765 in the three months through October from 539 a year earlier and the cancellation rate dropped to 6.9 percent from 30.2 percent, Horsham, Pennsylvania-based Toll said in a statement yesterday.

The shares climbed $3.02, or 16 percent, to $21.41 at 4:15 p.m. in New York Stock Exchange composite trading, the highest gain since 1992. The Standard & Poor’s Supercomposite Homebuilding Index rose 6.9 percent, the most since May.

Upside Surprise

“The surprise was more on the upside,” said David Goldberg, an analyst with UBS Securities LLC in New York. “They did better than we thought.”

Toll stands to gain a bigger market share as smaller rivals struggle to secure financing for new construction, said Goldberg, who rates the shares “buy.”

Robert Toll said the housing recovery “will come in fits and starts” and be “through choppy waters.”

The gain in contracts signed surpassed the 17.5 percent increase projected by James McCanless, an analyst with FTN Equity Capital Markets Corp. in Nashville, Tennessee, who rates the shares “buy.”

Increased orders and a “faster-than-expected reduction in speculative inventory” should boost gross profit margins this fiscal year if the cancellation rate stays near current levels, McCanless wrote in a report today.

Revenue dropped to $486.6 million in the quarter from $698.9 million a year earlier, Toll said. Twelve analysts in a Bloomberg survey predicted an average of $373.5 million.

Toll Brothers issued preliminary results yesterday and plans to release a full earnings report Dec. 3.