Updated from 1:20 p.m. EDT
optimistic revenue forecast and better-than-expected land situation helped shares move higher Tuesday, overshadowing a widely expected guidance cut.
For the third quarter ended July 31, the Horsham, Pa., company posted earnings of $174.6 million, or $1.07 a share. The profit was down from the year-ago $215.5 million, or $1.27 a share. Revenue fell to $1.53 billion from $1.55 billion a year earlier.
Analysts polled by Thomson First Call expected a $1.04-a-share profit.
Toll said the latest quarter included $23.9 million, or 9 cents a share, worth of writedowns, related mostly to lots under option in California and Florida.
The writedown issue has clouded the stock since Toll announced earlier this month that land option deposits would be forfeited. At the time, the company didn't specify the amount of the charge.
"The market thought (the writedown issue) was going to be worse than it was," says Jack Lake, an analyst with Victory Capital Management, which owns shares of Toll and other homebuilders. "So what you're seeing today is a little bit of a sigh of relief."
Toll shares recently were up $1.02, or 4.1%, to $25.79.
The nation's largest luxury-house builder projected fiscal-year earnings of $4.41 to $4.63 a share, down from its previous guidance of between $4.69 and $5.16 per share. The lowered projection was widely anticipated after Toll trimmed its full-year house-delivery forecast earlier this month.
Analysts already had taken down their full-year estimates, with the average estimate calling for earnings per share of $4.40.
Although Toll didn't give earnings guidance for its fiscal 2007, the company said it expects to deliver 7,000 to 8,000 homes at an average price of $635,000 and $645,000 next year. That's down from this year's projected deliveries of 8,600 to 8,900 houses at $685,000 to $690,000.
Based on the order forecast, along with $450 million to $500 million in revenue from buildings accounted for under the percentage of completion method, Toll's projections suggest revenue of $4.9 billion to $5.7 billion for fiscal 2007. That range appears to "imply an uptick in orders in '07, something we're not yet ready to assume," wrote Bank of America analyst Daniel Oppenheim, who rates Toll a sell, in a research note Tuesday.
Toll's implied revenue forecast is in line with analysts' estimates. Wall Street projects that Toll's revenue will fall to $5.1 billion in fiscal 2007 from $6.2 billion in the current year. Analysts expect earnings will drop to $3.06 a share next year from $4.40 in fiscal 2006.
One thing Toll has going in its favor is that it was one of the first builders to talk honestly about the housing slowdown when it first began a year ago, says a hedge fund manager who invests in builders.
"Because Toll was candid and managed expectations early, they have less explaining to do now and they have easier comparisons, and they have a well-positioned balance sheet," the fund manager says.
Since the company has been so open about its difficulties, Toll's stock has underperformed the rest of the homebuilding sector over the past year. Now, the fund manager says, Toll could be ready to outperform.