Toll Brothers Profit Surges on Strong Demand

Toll Brothers Inc. (TOL), a builder of luxury homes, on Thursday reported that quarterly profit more than doubled on strong demand and rising prices, and raised its full-year earnings forecast.

The strong report and earnings outlook lifted shares of the homebuilder by 3.2 percent in premarket trading on Inet electronic brokerage, to $88.45

Net profit increased 135 percent, to $170.1 million, or $2.01 per share, for its fiscal second quarter ended April 30 from $72.4 million, or 89 cents a share, in the year-ago quarter.

That easily exceeded analyst expectations of $1.79 per share, according to Reuters Estimates.

Revenue for the quarter rose 52 percent, to $1.25 billion, with contracts up 38 percent, to $2.2 billion.

Horsham, Pa.-based Toll said that based on its second-quarter results and record $5.87 billion backlog of homes under contract, it now expects net income for the full year to increase by 70 percent over 2004 levels, up from its previously raised forecast of 60 percent growth.

Toll can gauge fiscal year results with a large measure of assurance because homes under contract usually take up to 12 months to build and close. After that, the company can book the home price as revenue.

UBS Analyst Margaret Whelan raised full-year estimates for Toll to $8.95 per share, or up 78 percent from 2004. She now expects Toll to earn $10.80 per share in the 2006 fiscal year, a 21 percent increase. "As a result we are raising our price target to $108 from $100," Whelan wrote in a research note.

The company's second-quarter contracts and backlog were the highest for any quarter in its history. It said it signed contracts on 5,354 homes in the first two quarters. Previously, it had forecast contracts on 8,050 to 8,400 homes for the full year.

"With increasing numbers of communities in lot-constrained markets, our growing brand name and our broadening diversity of luxury new home product lines, we continue to produce record results," Robert Toll, chairman and chief executive, said in a statement.

Toll expects to end fiscal 2005, which ends in October, with about 240 selling communities, compared with 220 at end of the 2004 fiscal year. It now controls 68,000 home sites, up 10,000 from a year ago.

The company added that even with its raised outlook for 2005, it still expects to exceed this year's earnings by 20 percent in 2006.

Toll has been able to obtain land in hard-to-get, desirable locations, enabling it to push up prices for high-end buyers.

The company said it expects to take a 3 cent-a-share charge in the third quarter from the early retirement of debt. Second-quarter results included a 6 cent-a-share charge for early debt retirement.

Recent Commerce Department (search) data has shown the housing sector remains strong, despite eight consecutive quarter-point rate increases by the Federal Reserve (search). On Wednesday, Commerce reported a surprise 0.2 percent jump in sales of new U.S. homes to a record. And an 11 percent jump in housing starts, reported on May 17, also topped expectations.