Luxury homebuilder Toll Brothers Inc. (TOL) reported a 44 percent drop in quarterly earnings on Tuesday, but said the slumping U.S. housing market — which has weighed heavily on its results — might be bottoming out.

Shares rose nearly 2 percent in early trading even as the company forecast further profit declines in the new fiscal year.

"We may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above," Chief Executive Robert Toll said in a statement.

Toll said conditions seemed to be stabilizing in Washington's northern Virginia suburbs, for example.

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In the fourth quarter that ended on October 31, profit fell to $173.8 million, or $1.07 per share, from $310.3 million, or $1.84 per share, a year earlier. Analysts had expected $1.06 per share.

Revenue fell to $1.81 billion from $2.02 billion.

Morningstar analyst Eric Landry cautioned against reading too much into a possible bottoming out of the housing market.

"It's not hard to be better than it was, because it was awfully bad," he said. "It's still pretty much a given that there's too much inventory on all the home builders' books right now ... Although it appears that the situation on the demand side may be getting a little bit better, the question is have the stocks priced that in already?"

At Monday's close, the Horsham, Pennsylvania-based company's stock had fallen 7.9 percent year to date, compared with a 21.1 percent slide in the Dow Jones U.S. Home Construction Index.

Toll shares have rallied more than 40 percent from their year low of $22.22, hit in July.

Toll said it expected earnings of $1.58 to $2.08 a share for fiscal 2007.

The outlook includes the impact of a change of accounting method, which the company anticipates will shift earnings of between 22 cents and 29 cents a share from 2007 to subsequent years.

The forecast also includes an estimate of $60 million of pretax land-related write-downs — above the $16 million Toll budgeted annually in recent years — due to uncertain market conditions.

Net income for the just-ended fiscal year was $4.17 per share, including 56 cents in write-downs.

After several strong years, the U.S. housing market has deteriorated sharply as rising interest rates have crimped buyers' ability to pay ever-higher prices.

Citing the uncertain market conditions, D.R. Horton Inc. (DHI), the largest U.S. homebuilder, last month declined to offer investors a financial forecast for 2007.

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