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Downturn Still Taking Toll on Toll Brothers


Homebuilder posts fourth straight quarterly loss.

Toll Brothers (TOL) reported its fourth straight quarterly loss, underscoring the depth of the housing slump.

The nation's largest luxury homebuilder reported a net loss of $29.3 million, or $0.18 a share, for its third quarter ended July 31, compared with a profit of $26.5 million, or $0.16, for the same period a year ago. Analysts expected the company to lose $0.35 a share. Third quarter revenue totaled $797.7 million, a 34% decline from last year's total of $1.21 billion.

"We are now completing the third year of the worst housing market since we started in 1967," Robert I. Toll, chairman and chief executive officer, said in a prepared statement. "Weak consumer confidence has kept many potential buyers from taking advantage of the current buyers' market. Tightened mortgage lending standards have sidelined others."

In late morning trading, Toll Brothers gained $0.17, or 0.69%, to $24.97 a share. The 52-week range is $15.49 to $26.34.

The median price for a single family house fell 7.6% in the second quarter, making it difficult for owners to sell their houses and trade up. About 75% of US banks surveyed by the Federal Reserve said they had tightened standards on prime mortgages, up from 60% in the previous survey.

In July, the National Association of Realtors said the inventory of existing houses and condos for sale hit a record 4.67 million.

Rising mortgage rates are also hurting luxury buyers. On September 2, the national average for a 30-year jumbo mortgage was 7.38%, up from 7.11% a year ago.

Toll said single-family housing starts have declined by about 65% from the peak in January 2006 and are now at their lowest level since January 1991.

"We believe that most bit public builders have sold off most of their spec inventory, which eventually should help stabilize home prices."

However, Toll said the third-quarter cancellation rate was 19.4%, down from 23.8% a year ago. Third quarter 2008 backlog totaled about $1.75 billion, down 52% from last year's total of $3.67 billion.

The builder's houses sell for an average of $600,000, about 3 times the median price for a new house in the United States. The company sold the most houses in Delaware, Maryland, Pennsylvania, Virginia and West Virginia.

Many houses are built to the buyer's specifications and include General Electric appliances, Andersen windows and Bose stereo equipment.

Toll Brothers' competitors include D.R. Horton (DHI), Hovnanian Enterprises (HOV) and Pulte Homes (PHM).
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