(Toll Brothers earnings report updated with analyst commentary.)



) --

Toll Brothers

(TOL) - Get Toll Brothers, Inc. Report

posted better-than-expected results for its fiscal fourth quarter, returning to profitability thanks to a hefty tax benefit.

Toll Brothers, a

luxury homebuilder, said early Thursday that its net earnings in the recent quarter came to $50.5 million, or 30 cents per share, compared with a year-earlier net loss of $111.4 million, or 68 cents loss per share.

Analysts' consensus call had been for Toll Brothers to book a fourth-quarter loss of $10.2 million, or 8 cents loss per share.

Following the earnings beat and

better-than-expected pending home sales data, investors bid Toll Brothers shares 3% higher Thursday.

The builder's surprise profit came as the homebuilder benefited from a $59.9 million tax benefit in the quarter. In the year-earlier quarter, Toll Brothers suffered a tax expense of $4.7 million.

Raymond James analyst William Horne, in an appearance on


, said that while Toll Brothers' report was better than expected, those one-time tax benefits drove the builder's profit. Lack of visibility on future buying activity remains a problem, he added.

Toll Brothers' quarterly revenue decreased by 17.3% to $402.6 million, from $486.6 million, but the top-line figure still managed to top Wall Street's expectations for revenue of $393.8 million.

Homebuilding deliveries of 700 units in the quarter fell 19% year-over-year.

Signed net contracts of $315.3 million and 558 units dropped 27% in both dollars and units compared with Toll Brothers' fiscal fourth quarter of 2009.

Toll Brothers ended its fiscal year with a backlog of $852.1 million and 1,494 units, 3% lower in dollars and 2% lower in units compared with fiscal 2009's year-end backlog.

Horne pointed out that the company's backlog was lower than at any time since the mid-1990s. He said a true recovery for Toll Brothers and the housing market in general will begin at the lower end of the spectrum with first-time home buyers, a demographic in which Toll Brothers has not traditionally been strongest.

Though Toll Brothers will be "fighting an uphill battle," Horne suggested investors consider taking advantage of the builder's current valuation.

The analyst also likes small-cap builder

KB Home

(KBH) - Get KB Home Report

which does focus on the first-time buyer market, as well as


(LEN) - Get Lennar Corporation Class A Report


MDC Holdings

(MDC) - Get M.D.C. Holdings, Inc. Report


S&P analyst Ken Leon maintained a buy rating on Toll Brothers shares following the company's earnings beat. Given the builder's backlog decline, Leon expects the company to post 2% growth in fiscal 2011 and 6% in fiscal 2012.

Leon raised his fiscal 2011 forecast for earnings-per-share to 25 cents, compared with his prior estimate of a 5-cent per-share loss. He expects fiscal 2012 EPS of 50 cents, up from his prior estimate of 5 cents.

CEO Douglas C. Yearley Jr. conceded it had been another challenging year for Toll Brothers as the homebuilding sector struggled with waning demand and a still-unhealthy housing market.

"The persistent drag of high unemployment, reduced home equity, weak consumer confidence and frustration with the nation's economic and political climate outweighed the appeal of historic low interest rates and tremendous home affordability," he said.

"Many of our clients remain on the sidelines waiting for clearer signs that the economy is on the road to recovery," the CEO added.

Across the U.S.,

sales of newly built homes unexpectedly fell 8.1% in October to a weaker-than-expected annual rate of 283,000, according to data released by the Commerce Department last week.

>>New-Home Sales Fall 8.1% in October

Homebuilders began construction on 11.7% fewer homes in October to an annualized rate of 519,000, far worse than the expected contraction rate. Applications for building permits, meanwhile, inched 0.5% higher to 550,000, from 547,000.

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>>Housing Starts Fall 11.7% in October


stocks in the homebuilder sector were mostly higher Thursday.


SPDR S&P Homebuilders

(XHB) - Get SPDR S&P Homebuilders ETF Report

, an exchange-traded fund that tracks the homebuilder sector, rose 2.7% following

better-than-expected pending home sales data . The

iShares Dow Jones US Home Construction

(ITB) - Get iShares U.S. Home Construction ETF Report

ETF gained 3.7%.

Among individual builders,


(PHM) - Get PulteGroup, Inc. Report

added 5.4%,



KB Home


D.R. Horton

(DHI) - Get D.R. Horton, Inc. Report

3.9% and

MDC Holdings


-- Written by Miriam Marcus Reimer in New York.

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