Toll Brothers: Horrible Results but Good Enough to Rally

Bitter Sweet day for Toll Brothers Inc. (NYSE:TOL) shareholders, the largest U.S. luxury homebuilder reported its worst annual results since going public more than 20 years ago and gave a bleak forecast for 2009, yet shares rally 8%.

Amazing to consider but Toll Brothers shares are only down 4% for the year, compare that to the DOW being down 35% and S&P 500 down 41% YTD.

To rub in it further, TOL shares have jumped 18% since Tuesday, so why the recent surge in TOL shares?

Lending rates have plunged and U.S. mortgage applications surged by a record last week.

Tack on Toll Brothers strong balance sheet and liquidity, you've got a winning stock (for the moment).  However if the profit takers come in and start selling TOL shares, their recent 20% rally could be short lived.

Results thanks to Bloomberg.com: 

Revenue in fiscal 2009 will be “significantly” below the previous year and the company may deliver only 2,000 to 3,000 homes for the period, Toll said today in a statement. That compares with the 4,743 homes it sold this year.

“Obviously there are enormous challenges in our industry,” Chief Executive Officer Robert Toll said in the statement. “We are beginning to see some deals that are appealing in terms of quality but not price.”

Toll posted a fiscal loss of $297.8 million and said revenue for the year fell to the lowest since 2000. A record drop in home prices, the recession and a lack of financing is preventing buyers from selling their properties and trading up to Toll homes, which typically sell for more than $700,000.

Toll’s fourth-quarter net loss narrowed to $78.8 million, or 49 cents a share, from $81.8 million, or 52 cents, a year earlier, the Horsham, Pennsylvania-based company said today. Revenue plunged 40 percent to $698.9 million. The average price of net signed contracts fell 11 percent.

The company was projected to report a loss of 43 cents a share in the period ended Oct. 31, according to the average estimate of 12 analysts in a Bloomberg survey.

Toll said fourth-quarter cancellations rose to 233, or 30 percent of contracts. Net contracts slid 27 percent to $266.7 million or 539 homes. The average signed contract was about $495,000 in the quarter, down from $579,000 in the third quarter.

The value of the company’s backlog, or homes under contract and not yet sold, fell 54 percent to $1.33 billion and the number of homes in the backlog fell 48 percent to 2,046 at the end of the quarter.

The company has $1.63 billion in cash and $1.32 billion available under a credit agreement that expires in March 2011.