Toll earnings plunge

NEW YORK (CNNMoney.com) -- Luxury home builder Toll Brothers saw earnings plunge in its fiscal third quarter and projected more trouble ahead, but unlike its larger rivals it managed to stay in the black and beat forecasts.

Toll (Charts, Fortune 500), the nation's No. 7 home builder by revenue, said net income tumbled to $26.5 million, or 16 cents a share, from $174.6 million, or $1.07 a share, a year earlier. The consensus of analysts surveyed by earnings tracker First Call was for a loss of 2 cents a share.

Toll Brothers saw earnings plunge, but it bucked industry trends and forecasts by staying in the black.

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The company also issued a statement that credit rating agency Standard & Poor's had reaffirmed its investment-grade rating for its debt with a stable outlook.

Problems in the mortgage markets, particularly for jumbo loans of greater than $417,000, had caused analysts to cut their outlook for Toll in recent days. Bank of America equity research downgraded the shares Tuesday to a "sell" recommendation from its earlier neutral rating.

Shares of Toll, which lost nearly 5 percent in trading Tuesday on the downgrade, gained 2.8 percent in pre-market trading after the report.

Revenue fell 21 percent to $1.21 billion, although that was a bit better than the forecast of revenue of $1.15 billion from First Call.

Despite Toll Brothers' better than expected results, the builders' earnings statement said it expects more difficulties ahead for the battered home market.

"We, along with many others, are concerned about the dislocation in the secondary mortgage market," said a statement from Chairman Robert Toll. "Tightening credit standards will likely shrink the pool of potential home buyers: 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."

Toll's statement said that the company's buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles. But he warned it has experienced a much higher rate of cancellations than at any time in its 21-year history as a public company.

The company had nearly 24 percent of contracts signed by buyers during the quarter canceled, up from 18 percent a year earlier. But the company said that because of all the upheaval in the market, it would not give guidance on fiscal fourth quarter results.

Toll had pre-tax write-downs of $147.3 million, or 54 cents a share, during the period, although that was less than larger write-downs that some rivals have taken that have helped to topple them into red ink in the face of the sharp drop in new home sales.

All six of the bigger publicly traded builders have reported losses in their most recent period.

Lennar (Charts, Fortune 500), the nation's No. 1 builder, and No. 5 KB Home (Charts, Fortune 500) both reported a loss in the latest quarter. No. 2 home builder D.R. Horton (Charts, Fortune 500) and No. 3 Centex (Charts, Fortune 500) both reported losses far bigger than Wall Street had expected, while No. 6 Pulte Homes (Charts, Fortune 500) and Hovnanian have reported losses for the last two quarters and analysts project losses for at least the next year.