Toll Brothers Inc. (TOL)

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Toll Brothers, Inc. (TOL)

F4Q11 Earnings Call

December 6, 2011 02:00 pm ET

Executives

Bob Toll – Executive Chairman

Doug Yearly – Chief Executive Officer

Marty Connor – Chief Financial officer

Fred Cooper – Senior Vice President Finance, International Development and Investor Relations

Joe Sicree – Chief Accounting Officer

Kira Sterling – Chief Marketing Officer

Mike Snyder – Chief Planning Officer

Don Salmon – President, TBI Mortgage Company

Gregg Ziegler – Senior Vice President Treasury

Analysts

Dan Oppenheim – Credit Suisse

Susan – UBS

David Goldberg – UBS

Stephen Kim – Barclays Capital

Adam Rudiger – Wells Fargo Securities

Ken Zener – Keybanc

Nishu Sood – Deutsche Bank

Stephen East – Ticonderoga

Jason Markinson – JP Morgan

Joel Locker – FBN Securities

Jade Rahmani – KBW

Susan Berlinger – JP Morgan

John Micenko – SIG

Presentation

Operator

Good afternoon. My name is Dawn and I will be your conference operator today. At this time I would like to welcome everyone to the FQ4 and year-end F2011 conference call. (Operator instructions.) Thank you. Mr. Douglas Yearly, you may begin your conference, sir.

Douglas Yearly

Thank you, Dawn. Welcome and thank you for joining us. I’m Doug Yearly, CEO. With me today are Bob Toll, Executive Chairman; Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance, International Development and Investor Relations; Joe Sicree, Chief Accounting Officer; Kira Sterling, Chief Marketing Officer; Mike Snyder, Chief Planning Officer; Don Salmon, President of TBI Mortgage Company; and Gregg Ziegler, Senior VP, Treasury.

Before I 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 rtoll@tollbrothersinc.com.

As has become our regular practice we’re going to limit our prepared remarks to provide more time for Q&A. Since our detailed release has been up since early this morning and is posted on our website, I’m sure most have read it so I won’t reread it to you.

Against the backdrop of US government gridlock and persistently high unemployment rates at home, political and economic crises around the globe and dramatic volatility in the capital markets, we produced our second consecutive quarter of pre-tax profitability and our sixth consecutive quarter of pre-tax pre-impairment profitability. Although US housing starts remain down 60% from historical norms, we’ve had a solid improvement in most key metrics in F2011. Our pre-impairment homebuilding gross margin improved nearly 250 basis points in 2011 compared to 2010 and improved in each of the past four quarters compared to the prior year’s same period.

Our FQ4 2011 net income was $15 million or $0.09 per share diluted. On a pre-tax basis, FQ4 2011 net income was $15.3 million. Excluding inventory and joint venture write downs and debt retirement charges, FQ4 2011’s pre-tax income was $33.9 million. For the full F2011 net income was $39.8 million or $0.24 per share diluted. In F2011 we reported a pre-tax loss of $29.4 million as F2011’s inventory and joint venture write downs totaled $92.7 million, and charges related to early retirement of debts totaled $3.8 million. Excluding inventory and joint venture write downs and debt retirement charges, F2011’s pre-tax income was $67.1 million.

In FQ4 2011 revenues and homebuilding deliveries increased 6% in dollars and 8% in units compared to F2010. FQ4 net signed contracts rose 24% in dollars and 15% in units compared to F2010. The average price of FQ4 net signed contracts was $606,000 compared to $565,000 in FQ4 2010. For the full F2011, homebuilding revenues declined both 1% in both dollars and units compared to F2010. F2011 net signed contracts increased 9% in dollars and 7% in units compared to F2010. We ended F2011 with a backlog of $981.1 million and 1667 units, up 15% in dollars and 12% in units compared to F2010.

We ended F2011 with $1.14 billion of cash and marketable securities and $785 million available under our $885 million twelve-bank credit facility, which matures in October, 2014. Our F2011 year-end net debt to capital ratio was 15%.

Our strong balance sheet gives us the financial flexibility to invest in the future. During F2011 we spent approximately $281 million on land for our core traditional and urban new home business, purchasing approximately 3400 lots and optioning another 5800. This resulted in a net increase to 37,500 lots under control at F2011 year-end versus 34,900 at F2010 year-end. Nearly 60% of our lots are concentrated in the land-constrained metro Washington, D.C. to Boston corridor which enjoys lower unemployment and greater affluence than many other regions.

Two weeks ago we announced our entry into the Seattle market through the acquisition of CamWest which added approximately 1300 lots owned and 200 under option to our land position. During F2012 including Seattle, we project growing our community count by between 9% and 19% and reaching F2012 year-end with between 235 and 255 selling communities.

The urban metro New York City market remains a bright spot for us. In F2011 we opened for sale three new buildings under the Toll Brothers City Living brand. We launched 1450 Washington St., the fourth building in our successful Hudson T project at the northern tip of Hoboken, New Jersey. In Manhattan we opened the Terrain on the Upper East Side at 65th St. and Lexington Ave., a small boutique building with an average projected sales price of $5 million per unit. On the Brooklyn waterfront we opened 205 Water St. in the Dumbo neighborhood. Before opening for sale the Terrain and 205 Water, each had lists of over 3000 interested parties. In total, in the urban metro New York City market we have completed 13 buildings of approximately 2550 units, approximately 2430 of which have been sold. We are in construction on three buildings of 245 units and have eight more buildings of approximately 1600 units in planning.

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