Toll Brothers Earnings Preview

It might not be reasonable to expect Toll Brothers to report a profit Wednesday. After all, the builder specializes in the slower to recover upper-end market, and write-downs on its massive land bank have had a significant impact on the bottom line.

In fact, analysts are predicting a loss of $0.35 a share for its quarter that ended in January. That would be an improvement over the $0.44 loss it logged in October and the $0.55 loss in the same quarter of 2009.

Bob Toll even said during the company’s last quarterly analyst call that he expects the company to deliver fewer homes in 2010.

However, in the long run, it probably won’t matter if the builder’s ink is once again red for two reasons.

First, it has $1.8 billion worth of cash in the bank, which should ensure its survival plus give it enough cash to take advantage of high-margin-inducing land buys during the downturn.

Second, it may be building fewer houses, but, just by surviving, it’s gaining market share as its undercapitalized private competitors in the high-end market continue to close up shop.

“For Toll, although we believe the luxury market is likely to remain weaker in the [near term], we expect the company’s robust liquidity to drive market share gains from more constrained private builders as conditions normalize,” wrote UBS Investment Bank analyst David Goldberg in a research note this week.

The most interesting news to come out of Wednesday’s conference call might be Toll’s take on how the spring selling season is progressing and perhaps some news about what it’s doing with all that cash it has on hand. The builder has been reticent to pull the trigger on land purchases, saying most often that it was still overpriced.

But it did recently spend $8.9 million to buy 102 home sites in the Four Corners community in East Fishkill, N.Y., from WCI, a Florida-based builder recently out of bankruptcy that is selling off noncore assets.

View Article from BigBuilderOnline.com

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