Toll Earnings Plunge

Updated from 6:18 a.m. EDT

Toll Brothers'(TOL) second-quarter earnings fell 79% from a year ago as the homebuilder continues to be hit by write-offs of land purchases and options.

The Horsham, Pa., builder of luxury homes earned $37 million, or 22 cents a share, for the quarter ended April 30, down from the year-ago $175 million, or $1.06 a share. Analysts expected profit of 25 cents a share, according to Thomson Financial.

The latest quarter included $120 million, or 44 cents per share, in land writedowns, up from 4 cents a year earlier.

Revenue fell to $1.17 billion from $1.44 billion a year earlier. Net signed contracts dropped 24% from a year ago, though cancellations also slipped, to 19% from the first-quarter level of 30%.

"Given the uncertainty surrounding sales paces, and market direction and, thus, the potential for and size of future impairments, we are not comfortable giving full earnings guidance at this time," said Joel Rassman, the company's chief financial officer.

For the year, Toll forecast revenue of $4.26 billion to $4.88 billion, matching analyst estimates. The company did signal that certain markets are performing well.

"In what generally remains a soft market, there are glimmers of strength in certain territories. Manhattan, Brooklyn and Queens in New York City, and Jersey City and Hoboken, are strong. Southern Connecticut and Dutchess County, N. Y. are also good," Robert Toll, the company's CEO, said in a statement. "The Philadelphia suburbs, and Delaware, are solid. Raleigh, Austin and Dallas are holding up well as are parts of Northern California, primarily around Silicon Valley."

Bank of America analyst Daniel Oppenheim said in a research note Thursday that he expects Toll to record an additional $225 million of pretax land impairments this year, representing 4% of the company's book value after tax. Oppenheim believes Toll's margins are likely to continue to erode because of further deterioration in homebuyer traffic, based on Bank of America's May survey of real estate agents across the country.

"In addition, we believe Toll's more recently purchased communities, which are not yet opened, face greater risk for impairment due to a likely higher cost basis, as a majority of impairments to date have come from operating communities," Oppenheim said in his note.

In premarket trading, Toll shares fell 26 cents to $29.51.

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