Toll Brothers sales plunge
Revenue at luxury home builder falls 36% in early financial report; high cancellations for expensive homes reduce value of new contracts by nearly half.
NEW YORK (CNNMoney.com) -- Luxury home builder Toll Brothers issued preliminary fourth-quarter results Thursday that showed a sharp drop in the number of new homes sold and an even deeper plunge in the average price of the home it was able to sell, as buyers canceled orders for its more expensive offerings.
Toll Brothers (Charts, Fortune 500) did not report earnings, but said overall revenue was down 36 percent to $1.17 billion, in its fiscal fourth quarter, which ended Oct. 31, while the pipeline of new business fell even more sharply.
Net signed contracts, which reflects new contracts less canceled orders, fell 35 percent to 656 homes, while the value of those new contracts plunged 48 percent to about $365.2 million.
The company, which unlike most other larger builders has thus far managed to avoid posting a quarterly loss during the current housing slump, is due to report full results Dec. 6. Analysts surveyed by earnings tracker Thomson First Call are forecasting it will follow rivals into the red with a loss excluding items of 6 cents a share, down from earnings of $1.07 a share a year earlier.
Toll Brothers said higher-priced homes suffered the worst cancellation rates, as the average price of the 417 canceled contracts during the quarter was $788,000. That trimmed the average price of the net signed contracts in the period at $557,000 per unit.
While the number of new canceled orders was down 29 percent from a year earlier, that's only because of a 33 percent drop in gross new contracts signed.
"We continue to believe that excess supply created by cancellations, speculative buyers, and overly ambitious builders; customer concerns about selling their existing homes; and a general lack of confidence are the primary impediments to our market's recovery," said a statement from company Chairman and CEO Robert Toll.
But Toll said problems in the jumbo mortgage market, which covers home loans greater than $417,000, was not a significant cause of trouble for the company.
"An inability to obtain mortgages does not appear to be a major factor for our buyers, although it may affect our buyers' buyers," he said.
Toll said he's hoping that the sharp drop in building starts is a sign that the glut of new homes on the market will soon start to fall. He also had a less macroeconomic hope to help rescue sales.
"Perhaps, as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page," he said in the statement. "Then, hopefully, the positive underpinnings of low interest rates, low unemployment and a decent economy will raise consumer confidence and provide the platform for a turnaround in the new home market.''
Other larger home builders have all reported losses in recent quarters, as bad financial news has been common place throughout the industry.
On Tuesday, Hovnanian Enterprises (Charts, Fortune 500) released its own preliminary figures that showed cancellations amounted to 40 percent of gross contracts in its fiscal fourth quarter, up from a 35 percent cancellation rate in the year-earlier and preceding periods.
Pulte Homes (Charts, Fortune 500) reported a much bigger than expected loss in the most recent quarter at the end of October. That came the same day that rival Centex (Charts, Fortune 500) disclosed it had cut prices on some homes by 15 to 20 percent in order to try to maintain sales, and had cut staff by more than 40 percent. The day before Centex had reported a large second-quarter loss.