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Toll Brothers Inc. (TOL)
Q3 2009 Outlook Call
August 12, 2009 2:00 pm ET
Robert Toll – Chairman, Chief Executive Officer
Joel Rassman – Chief Financial Officer
Greg Ziegler – Vice President Finance
Doug Yearly – Regional President, Head of M&A
Don Salmon – President, TBI Mortgage Co.
Ray for Michael Rehaut – J.P. Morgan
Alan for Ivy Zelman – Zelman & Associates
Mike for Daniel Oppenheim – Credit Suisse
David Goldberg – UBS
Kenneth Zenner – Macquarie Capital
Mosji Sood – Deutsche Bank
Joshua Pollard – Goldman Sachs
Joshua Levin – Citi
Steve Sullivan – Banyan Securities
Megan McGrath – Barclays Capital
Rob Stevenson – Fox-Pitt Kelton
Stephen East – Pali Research
Buck Horn – Raymond James
James McCanless – FNT Equity
[Joel Locker – Ftn Securities]
Previous Statements by TOL
» Toll Brothers F4Q09 (Qtr End 10/31/2009) Earnings Call Transcript
» Toll Brothers Inc. F4Q09 Outlook Call Transcript
» Toll Brothers, Inc. F3Q09 (Qtr End 07/31/2009) Earnings Call Transcript
Welcome and thank you for joining us everybody. With me today are Joel Rassman, Chief Financial Officer, Marty Connor, Assistant CFO, Fred Cooper, Senior VP of Finance and Investor Relations, Joe Sicree, Chief Accounting Officer, Krya McCarron, Chief Marketing Officer, Doug Yearly, Regional President and Head of M&A, Don Salmon, President of TBI Mortgage Co., and Greg Zeigler, Vice President of Finance.
Before we begin I ask you to read the statement on forward-looking information in today's release and on our website. I caution you that many statements on this call are based on assumptions about the economy, world events, housing and financial markets and many other factors beyond our control that could significantly affect future results. Those listening on the web can email questions to email@example.com.
Today we reported preliminary results for our third quarter ended July 31, 2009. We will announce final results when we announce earnings on October 27. Since our detailed release has been out since 5:00 am, and is posted on our website, I will just hit certain highlights.
In fiscal year '09 third quarter net signed contracts of 837 units and $447.7 million rose 3% in units and declined 5% in dollars compared to third quarter of fiscal year '08. Third quarter home building deliveries and revenues of 792 units and $461.3 million declined 36% in units, 42% in dollars. Third quarter backlog of 1,626 units and $930.7 million declined 37% in units and 47% in dollars compared to fiscal year '08 third quarter results.
Although our industry continues to face significant challenges, we are encouraged by the increase in number of net contracts signed this quarter. This marks the first time in sixteen quarters dating back to fiscal year '05's fourth quarter that our net contracts exceeded the prior year same quarter.
It also marked the first quarterly sequential unit increase in our backlog in more than three years. The increase in net contracts was generated despite our having approximately 22% fewer communities during fiscal year '09's third quarter than during fiscal year '08.
On a per community basis, our net contracts were up about 32%. Despite the 22% fewer selling communities, our fiscal year '09 third quarter gross signed contracts of 915 units were down just 9% from the fiscal year '08's third quarter compared to a 40% decline in fiscal year '09's second quarter versus fiscal year '08's second quarter.
And gross signed contracts were up 16% on a per community basis. This improvement coupled with our lowest cancellation rate in over three years drove the increase in net signed contracts. Typically we sign fewer contracts in our third fiscal quarter than in our second because the second quarter which runs from February 1 through April 30 encompasses a primary selling season.
This fiscal year however, third quarter net contracts exceeded second quarter net contracts by 44%. This has occurred three other times since we went public in '86 and each time it was less than a 10% increase.
Although some of our markets are still stuck in the mud, many are improving. While we have to work very hard for ourselves, it does feel as if the fence sitters are looking for reasons to jump in on the side of buying. Price is no longer the overwhelmingly dominant factor. It appears that those taking this step today have more confidence than one year ago. This is reflected in our third quarter rate of conversions of non binding deposits into signed contracts, the highest since fiscal year '05 and our declining contract cancellation rate.
Fiscal year '09's third quarter cancellation rate, current quarter cancellations divided by current quarter's signed contracts, was 8.5% versus 19.4% in fiscal year '08's third quarter. This was our lowest cancellation rate since the second quarter of fiscal year '06 and is approaching our historic average of approximately 7% since going public.
While the statistics above cannot be considered determinative of the luxury segments recovery, or that of the overall homebuilding industry, we believe they are more indicative than anecdotal. Many markets feel better than they did six months ago.
The consumer interest we saw in April and May leveled off a bit from June through mid July, but has regained momentum more recently. As the supply of unsold housing inventory shrinks nationwide, and if consumer confidence continues to improve, we should see stronger demands. It has already positively impacted our pricing power as we are reducing incentives in many markets.
We believe several factors could help Toll Brothers as the market improves. First, we have a strong presence in affluent markets in the Mid Atlantic and Northeast corridor. These markets have been relatively less impacted by foreclosures and overbuilding than other regions.