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Toll Brothers Sees Loss, But Also Stabler Times

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By ALEX VEIGA

The Associated Press

Published: September 5, 2008

LOS ANGELES - Toll Brothers Inc. said Thursday it swung to a loss in its fiscal third quarter as weak demand for new homes forced the luxury builder to mark down the value of its land and unsold homes.

But Chief Executive Officer Robert Toll is seeing signs the market is stabilizing - the company had the lowest contract cancellation rate in more than two years, and more buyers are putting down deposits.

"We believe that there is pent-up demand," Toll said, but noted the housing market won't begin to recover until the trove of foreclosed homes on the market are sold.

"Unfortunately, we can't predict when that will occur."

The Horsham, Pa.-based builder lost $29.3 million, or 18 cents a share, in the three months that ended July 31.

That's a reversal from a profit of $26.5 million, or 16 cents a share, in the year-ago quarter.

Toll absorbed $84.3 million in after-tax write-downs in the quarter. Excluding the charges, earnings were $55 million, or 35 cents a share, and in line with Wall Street estimates.
Quarterly revenue fell 34 percent to $797.7 million from $1.21 billion, as revenue from completed contracts declined.

Toll's shares rose 27 cents, or 1.1 percent, to $25.07.

Like other homebuilders, Toll's business has suffered through the third year of a housing market downturn the CEO called the worst in the company's history.

Home sales are declining in the face of competition from heavily discounted foreclosed properties, tougher mortgage lending standards and lagging consumer confidence.

Toll's net contracts for the third quarter plunged 27 percent to 812 homes versus the same quarter last year.

On the bright side, only 195 buyers canceled their contracts.

The company also closed the quarter with a balance-sheet bolstering cash reserve of more than $1.5 billion - a key positive that investors look for in weighing how well the builder can weather the downturn and seize opportunities.

Looking ahead, Toll projected it will deliver 850 to 1,050 homes in the fourth quarter with an average price between $640,000 and $650,000.

As a result, the company said its fourth-quarter revenue will be lower than in the latest quarter, in part because of generous buyer incentives.

The builder declined to offer earnings guidance.

For the first nine months of its fiscal year, Toll posted a net loss of $219 million, or $1.38 a share. This compared with a net earnings of $117.5 million, or 72 cents a share, for the same period a year ago.

Excluding write-downs, the builder earned $193.6 million, or $1.18 a share.

Revenue in the first nine months of fiscal 2008 was $2.46 billion, a drop of 29 percent from $3.48 billion in the year-ago period.

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