Dec. 3 was the proverbial “good news/bad news” day for Toll Brothers (Stock Quote: TOL). On that day, the home construction giant released its fiscal fourth-quarter numbers. What those numbers show is that the home construction market is hurting and will continue to hurt, but maybe there’s light at the end of the tunnel.
For the particulars, Toll Brothers lost $111.4 million in the fiscal fourth quarter of 2009. Total revenues declined to $1.76 billion from $3.15 billion. It also reported a 42% boost in new home sales and only a 7% decline in housing cancellations. The company assigns the blame for the loss on write-downs on the value of the land it owns and expenses due to managing staff reductions. Company officials also point to a slowing market as the holiday season kicks into higher gear.
"The choppiness in demand that began after Labor Day, following a stronger period from late March through late August, has continued," Robert Toll, chief executive officer, said in a statement released by Toll Brothers. "This is consistent with recent weaker economic news. Since the holiday season is not typically the busiest time to be purchasing or selling homes, we suspect the housing market may be following seasonal buying patterns."Holidays or not, the trouble for Toll Brothers is that it’s operating in a chaotic housing environment. The numbers show that more and more Americans are late on their mortgage payments, and more are consequently facing foreclosure. But sales of new homes were up in October, and new homes are what Toll Brothers are all about.
But are those new home sales sustainable? There’s little question that the extension of the $8,500 new home purchase tax credit has propped up the market — and that extension is good through April 2010. Better yet for Toll Brothers, which makes its bread-and-butter on pricey “trade-ups” from people who already own homes but are looking to move up, Congress also approved a $6,500 tax credit for existing homeowners.
But the tax credits can’t go on forever. And when they eventually expire, Toll — and other homebuilders — will likely find themselves right back in the line of fire, profits-wise.