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Toll Brothers: Reality Bites


Some shockingly straightforward comments from Toll Bros' Robert Toll on yesterday's pre-earnings conference call...


Some shockingly straightforward comments from Toll Bros' (TOL) Robert Toll on yesterday's pre-earnings conference call:

  • Impairment charges of $90 mln to 130 mln - almost all on existing communities rather than land options - will wipe out the better part of this quarter EPS.

  • Stricter lending standards are hurting the entire homies foodchain.

  • Market has gotten progressively worse since March.

  • The Washington DC area, for which the company had called a bottom in February, is back looking for the bottom. Which might explain why the CEO of NVR Inc. (NVR) recently sold a few hundreds of millions worth of stock, after a stock ramp engendered by hopes that the DC area had seen the bottom.

  • When you hear on TV that a homie blew away estimates, bear in mind that much of those EPS are likely coming from reversal of impairment charges, and they hardly mean that things are getting better.

  • TOL has a major piece of land in Phoenix that has not been written down yet; analysts seemed concerned about the potential impairment of that property bought for peak dollars in January of '06.

  • In February TOL had guided to $60 mln in total impairment charges for the year; with $90 mln-$130 mln for this quarter, that's gonna have to be tweaked.

  • The impact of the foreclosures pipeline on the broad market has not yet been seen.

  • Question: "Are there some great opportunistic land deals in FL?" Answer by Bob Toll: "Yes, probably. The problem is sometimes half price ends up to be twice price, and you have to guess which is the right moment."

  • A small portion of this quarter's impairment charges are on communities that had already been written down.

  • Grading the state of the markets: Central Florida: "F"; Florida East Coast: "F+"; North Florida: "F"; Tampa: "F"; and West Coast of FL: "F". Which raises the question of whether BankUnited Financial (BKUNA) has secretly cornered all of the non-troubled real estate in FL, since we absolutely know from its management that there are no problem loans there.

  • Question: "You have a bunch more F's than you had the last time. I think you are saying [that the] business at best is going downward? Is that a correct interpretation?

    Answer: Yes.
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Position in XHB, BKUNA
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