Toll Brothers Inc. (TOL)

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Toll Brothers, Inc. (TOL)

F1Q12 Earnings Call

February 22, 2012 2:00 PM ET

Executives

Douglas Yearley – CEO

Martin Connor – CFO and Treasurer

Bob Toll – Executive Chairman

Gregg Ziegler – SVP

Analysts

Michael Rehaut – JPMorgan

Stephen Kim – Barclays Capital

Daniel Oppenheim – Credit Suisse

Jade Rahmani – KBW

David Goldberg – UBS

Stephen East – ISI Group

Rob Hansen – Deutsche Bank Securities

Megan McGrath – MKM Partners

Adam Rudiger – Wells Fargo Securities

Dennis McGill – Zelman & Associates

Joel Locker – FBN Securities

Steven Bachman – RBC Capital Markets

Jack Micenko – SIG Group

Alex Barron – Housing Research Center

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 First Quarter 2012 Earnings Conference Call. (Operator Instructions) After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Douglas Yearley, you may begin your conference, sir.

Douglas Yearley

Thank you, Dawn. Welcome and thank you for joining us. I’m Doug Yearley, 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 Greg 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 e-mail 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 out since early this morning and is posted on our website, I’m sure most have read it so we won’t reread it for you.

This first quarter, we reported a net loss of $2.8 million or $0.02 per share diluted. Our first quarter included a net tax benefit of $3.6 million and inventory write downs totaling $8.1 million. Excluding write downs, fiscal year 2012’s first quarter pre-tax income was $1.7 million.

Our first quarter revenues and homebuilding deliveries of $322 million and 564 units decreased 4% in dollars and 1% in units compared to 2011’s first quarter. Since some of our backlog is in towers, with longer delivery times than our average single family community, some of our backlog did not convert into revenues as would have been expected based on historical conversion ratios.

Our first quarter net signed contracts of $444.7 million and 652 units rose 45% in dollars and 19% in units compared to 2011’s first quarter. We ended our first quarter with a backlog of $1.12 billion and 1,784 units, an increase of 35% in dollars and 21% in units compared to one year ago. We ended the first quarter with 228 selling communities, up 14% from one year ago. And we had approximately 39,700 lots owned and auctioned, up 11% from a year ago.

At fiscal year 2012’s first quarter end, we had $720 million in cash and $815 million available under our $885 million 12-bank credit facility which matures in October 2014. At the start of our second quarter, we raised approximately $300 million of 10-year debt priced a 5.875% in the public markets.

The past few months have been exciting for Toll Brothers. Our total and per community contracts were the highest for a first quarter in five years. The value of our backlog is up 35%. We entered the Seattle market through the acquisition of CamWest. We teamed with Equity Residential to acquire a great site at 28th Street and Park Avenue South in Manhattan were Toll will own and sell condominiums on the top 18 floors of what we believe will be an iconic 40-story building. And our Gibraltar subsidiary acquired its fifth portfolio of distressed assets with a combined outstanding loan balance of $51.4 million. This was Gibraltar’s first portfolio of primarily commercial assets.

Historically, our first quarter is the most challenging time to gauge sentiment among our home buyers since it encompasses Thanksgiving, Christmas, New Years and the doldrums of early January. However, in general, the market feels healthier than it did one year ago. The urban metro New York City market remains very strong. We are also encouraged by the continued health of the Washington D.C. to Boston corridor along with Houston, Dallas, Raleigh, and more recently Southern California. We are even seeing some recovery on the east coast of Florida and in the suburbs of Detroit and Phoenix.

Our first quarter deposits, which are non-binding, were up 22% gross and 4% per community compared to last year’s first quarter. More recently, in the first three weeks of February, on a gross and per community basis, deposits were up 43% and 25% respectively compared to the prior year same period. With the economic and employment picture improving and the financial markets trending up, buyers are taking advantage of tremendous affordability and record low mortgage rates.

Now to the famous family with a dog and the two kids; they’re even more tired of waiting. They’ve added a second dog, they are more confident they can sell their existing home and they love today’s interest rates. Their kids are now in middle school and they want to get them settled into the better school district. So they are chomping at the bit to get their new home with a bigger yard. If they wait much longer, the kids will have graduated from their old school and mom and dad will be eligible for our 55 plus active adult communities.

Read the rest of this transcript for free on seekingalpha.com