Toll Bros Profit Doubles on Housing Boom

Toll Brothers Inc.(TOL) on Thursday said quarterly profit more than doubled as improved pricing offset higher costs and the luxury home builder raised its 2005 earnings outlook on hopes a rebounding economy would lift housing demand.

Even so, the company's stock slipped by more than two percent after the earnings announcement as some investors cashed out gains tied to the stock's recent surge.

Toll Brothers said profit rose to $215.5 million, or $1.27 per share, in the third quarter ended July 31, from $106 million, or 66 cents per share, a year earlier.

Revenue grew 54 percent to $1.56 billion, topping analysts' average forecast for the Horsham, Pennsylvania-based company to earn $1.19 per share on revenue of $1.53 billion, according to Reuters Estimates.

Lehman Brothers analyst Steven Fockens said Toll "continues to show strong results and we believe its long-term outlook (remains) healthy on market share gain opportunity."

Fockens raised his earnings estimates for the company's fiscal fourth and fiscal 2006 but kept his "equal-weight" rating, citing Toll Brothers' valuation premium compared with its peers. He also raised his price target on the stock to $54 from $53.

Toll shares trade at 11.5 times projected 2005 earnings, compared with those of peer KB Home (KBH), which trade at 7.9 times earnings, according to Reuters Estimates.

Looking ahead, Toll Brothers forecast net income to grow 80 percent in the fiscal 2005 year ending in October, up from a prior forecast of 70 percent. For fiscal 2006 and 2007, the company said it was on track for 20 percent net income growth.

For fiscal 2006, Toll forecast to deliver 10,200 to 10,600 homes at an average price of $665,000, which would translate to revenue for the year of $6.78 billion to $7.05 billion.

"We've watched some markets go from overheated to warm and back to hot," Robert I. Toll, company chairman and chief executive officer, said in a statement.

"It appears to us that the basic fundamentals of wealth accumulation, constrained lot supplies and growing demand should continue to support our business model," he added.

The home builder said it closed on 2,310 homes during the third quarter, up 55 percent. New orders during the quarter rose to 2,746 homes from 2,329 in last year's third quarter, while the value of the homes rose 19 percent to $1.92 billion.

Toll ended the quarter with a backlog of 9,490 homes under contract and awaiting construction, up from 6,856 in the year-earlier quarter. The value of the backlog rose 48 percent to $6.43 billion, the company said.

Toll shares were off $1 or 2 percent, at $49 on the New York Stock Exchange (search), where they earlier fell as low as $48.81. Year-to-date the stock is up 42 percent.