Real Estate - Toll Brothers earnings drop by 85%
Real Estate - Toll Brothers earnings drop by 85%
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: August 22 2007 11:42 | Last updated: August 22 2007 11:42
Toll Brothers’ chief executive on Wednesday said the company was seeing the highest rate of cancellations on orders for its luxury homes for more than 20 years, as he revealed third quarter earnings had fallen 85 per cent.
“During this downturn, we have experienced a much higher rate of cancellations than at any time in our twenty-one-year history as a public company,” said Robert Toll, who set up the company in 1967.
He also warned that the global credit crunch which has hit financial markets in recent weeks could further exacerbate the weakness in US housing by making it more difficult for home buyers to secure mortgages.
“Tightening credit standards will likely shrink the pool of potential home buyers,” he said. “Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes.”
Home builders have been hit by the fall-out from rising defaults on subprime mortgages, which are loans to people with sketchy credit histories. More stringent requirements for loans, higher interest rates and falling interest in buying houses have compounded the problems for the housing industry.
Toll said that at the moment its customers were not experiencing problems in getting “Jumbo” loans, which are loans for over $417,000. However, in recent weeks many lenders have raised rates for larger and more secure loans, which had previously been considered safe from the troubles hitting the market for subprime mortgages.
“”What we have seen in the past month is an acceptance of the fact that the problems go beyond subprime and into Alt A and Jumbo loans,” said Greg Gieber, an analyst at AG Edwards. “The housing market has gone from worse to worser.”
The company said that it would not issue earnings guidance for its fourth quarter, or confirm any previous guidance, “given the numerous uncertainties surrounding sales paces, the mortgage markets, market direction and the potential for and size of future impairments”.
Net earnings were $27m, or 16 cents per share, compared with $175m, or $1.07 per share in the same period last year. The results included a charge of $89m as the company was forced to write down the value of land it owns.
Analysts had on average expected earnings of 5 cents per share, according to Reuters Estimates. Shares in Toll jumped $1.20 or 5.7 per cent to $ 22.30 by midmorning.
A fortnight ago Toll said its quarterly revenue had fallen 21 per cent to $1.21bn in the third quarter and orders for new homes had fallen 31 per cent to $727.1m.
The company also previously revealed that prospective home buyers signing contracts had cancelled their orders at a rate of 23.8 per cent, compared with 18.9 per cent in the third quarter last year.
Mr Toll said that building fewer homes was the key to recovery in the housing markets. “Last week’s very low housing starts data implied that this is beginning to occur,” he said. “Once equilibrium is achieved, we believe home prices will firm and customers, who are waiting on the sidelines, will have the confidence to enter the market.’’
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: August 22 2007 11:42 | Last updated: August 22 2007 11:42
Toll Brothers’ chief executive on Wednesday said the company was seeing the highest rate of cancellations on orders for its luxury homes for more than 20 years, as he revealed third quarter earnings had fallen 85 per cent.
“During this downturn, we have experienced a much higher rate of cancellations than at any time in our twenty-one-year history as a public company,” said Robert Toll, who set up the company in 1967.
He also warned that the global credit crunch which has hit financial markets in recent weeks could further exacerbate the weakness in US housing by making it more difficult for home buyers to secure mortgages.
“Tightening credit standards will likely shrink the pool of potential home buyers,” he said. “Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes.”
Home builders have been hit by the fall-out from rising defaults on subprime mortgages, which are loans to people with sketchy credit histories. More stringent requirements for loans, higher interest rates and falling interest in buying houses have compounded the problems for the housing industry.
Toll said that at the moment its customers were not experiencing problems in getting “Jumbo” loans, which are loans for over $417,000. However, in recent weeks many lenders have raised rates for larger and more secure loans, which had previously been considered safe from the troubles hitting the market for subprime mortgages.
“”What we have seen in the past month is an acceptance of the fact that the problems go beyond subprime and into Alt A and Jumbo loans,” said Greg Gieber, an analyst at AG Edwards. “The housing market has gone from worse to worser.”
The company said that it would not issue earnings guidance for its fourth quarter, or confirm any previous guidance, “given the numerous uncertainties surrounding sales paces, the mortgage markets, market direction and the potential for and size of future impairments”.
Net earnings were $27m, or 16 cents per share, compared with $175m, or $1.07 per share in the same period last year. The results included a charge of $89m as the company was forced to write down the value of land it owns.
Analysts had on average expected earnings of 5 cents per share, according to Reuters Estimates. Shares in Toll jumped $1.20 or 5.7 per cent to $ 22.30 by midmorning.
A fortnight ago Toll said its quarterly revenue had fallen 21 per cent to $1.21bn in the third quarter and orders for new homes had fallen 31 per cent to $727.1m.
The company also previously revealed that prospective home buyers signing contracts had cancelled their orders at a rate of 23.8 per cent, compared with 18.9 per cent in the third quarter last year.
Mr Toll said that building fewer homes was the key to recovery in the housing markets. “Last week’s very low housing starts data implied that this is beginning to occur,” he said. “Once equilibrium is achieved, we believe home prices will firm and customers, who are waiting on the sidelines, will have the confidence to enter the market.’’
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