Toll Bros. reports profit in 3d quarter

With sales volume still 65 percent below the peak of the housing boom, luxury-home builder Toll Bros. returned to profitability in the third quarter.

The Horsham-based company today reported net income of $27.3 million, or $0.16 a share, compared with 2009 third-quarter net loss of $472.3 million, or $2.93 per share.

Excluding write-downs, pre-tax income was $13.3 million, compared with $3.7 million in the 2009 third quarter.

Third-quarter revenue of $454.2 million was 2 percent lower than 2009's $461.4 million, but the company sold 1 percent more homes than last year's period – 803 in 2010 versus 792 in 2009.

The cancellation rate remained the same, with 46 buyers pulling out of contracts before going to settlement.

"We were pleased to return to profitability this quarter, especially with volumes down 65% from our peak," said Toll CEO Douglas C. Yearley Jr. "Although revenues and unit deliveries for the quarter were relatively flat compared to one year ago, our gross margin, before write-offs, improved by 350 basis points."

Although much of the quarter's profitability resulted from $26.5 million in tax benefits, "we are encouraged by the decline in impairments and our fifth consecutive quarter of more normalized cancellation rates after three years of elevated rates," Yearley said.

Yearley said the company was "pursuing growth," looking for distressed-land and debt-acquisition opportunities through its new wholly owned subsidiary Gibraltar Capital and Asset Management Corp., formed during the quarter.

"This quarter, our count of lots owned and optioned increased to 35,800 from our trough of 31,700 at FY 2010's first-quarter end," Yearley said. "This was the second consecutive quarter of sequential growth in our land position. We continue to find opportunities in most of our markets and this quarter spent approximately $104 million on land acquisitions, bringing our nine month total to approximately $340 million."

Toll chief financial officer Joel H. Rassman said that, subject to the usual caveats, the builder expects to deliver 560 and 760 houses during the fourth quarter, which will bring the 2010 fiscal year total to between 2,500 and 2,700 units, with an average price of $560,000 to $570,000.

Executive chairman Robert I. Toll said that although the unemployment rate among its target buyers' group was half the national average, "recent economic and political news continues to dampen our customers' confidence."

"We believe the combination of potential buyers postponing their purchasing decisions, a lack of new home production over the past several years, and a significant reduction in our competition in the luxury home niche could result in pent-up demand coupled with limited supply once a recovery takes hold," he said.