Toll Trims Estimates Again

Updated from 9:38 a.m. EDT

Homebuilder Toll Brothers(TOL Quote) reported a 48% plunge in third-quarter new orders and again cut its delivery forecast for the year, as the company blamed oversupply for the weak U.S. housing market.

Toll, the country's largest luxury-home builder, also warned that it is walking away from certain land option contracts, which will results in write-offs of deposits. The company said it will quantify this impact when it reports earnings later in August.

Toll shares recently were down $1.30, or 4.9%, to $25.28, as the entire homebuilding sector moved lower. Shares of Ryland (RYL Quote) were down $2.38, or 5.6%, to $40.50; Hovnanian (HOV Quote) declined $1.29, or 4.7%, to $26.25; and KB Home (KBH Quote) shed $1.61, or 3.6%, to $42.84.

Toll said its revenue for the quarter ended July 31 fell to $1.53 billion from $1.54 billion a year earlier. Its backlog of homes sold but not yet delivered dropped 13% at quarter-end to $5.59 billion. Total new contracts, including those for homes sold in joint-venture communities and high-rise condo towers, totaled 1,473 units, down from 2,857 a year earlier.

Based on its current backlog, the company expects to deliver between 2,500 and 2,800 homes in the fourth quarter, compared to its previous guidance of 2,900 to 3,300 deliveries. For its full 2006 fiscal year, the company believes it will deliver between 8,600 and 8,900 homes.

In May, Toll trimmed its full-year delivery forecast by 200 houses to a range of 9,000 to 9,700.

In a research note, Bank of America analyst Daniel Oppenheim, who rates Toll a sell, says he expects the company to eventually lower its fiscal 2006 earnings guidance once again. The company's current forecast calls for earnings per share of $4.69 to $5.16.

Oppenheim cut his 2006 earnings estimate for the company to $4.20. Next year, he expects EPS of $2.25.

According to Oppenheim, the options write-offs have the potential to be significant. He estimates Toll has purchased options on about 45,000 lots since the end of fiscal 2004, with an estimated option deposit of $10,000 per lot, or about $450 million total.