Toll Brothers sees signed contracts on the rise

HORSHAM, Pa., Aug. 12, 2009 -- Toll Brothers today reported preliminary results for its third quarter ended July 31, 2009.

FY 2009's third-quarter net signed contracts of approximately 837 units and approximately $447.7 million rose 3% in units and declined 5% in dollars compared to FY 2008's third-quarter totals. The Company's FY 2009 third-quarter home building deliveries and revenues of approximately 792 units and approximately $461.3 million declined 36% in units and 42% in dollars, and its third-quarter-end backlog of approximately 1,626 units and approximately $930.7 million declined 37% in units and 47% in dollars, compared to FY 2008's third-quarter results.

Robert I. Toll, chairman and chief executive officer, stated: "Although our industry continues to face significant challenges, we are encouraged by the increase in the number of net contracts signed this quarter. This marked the first time in 16 quarters - dating back to FY 2005's fourth quarter - that our net contracts exceeded the prior year's same quarter. It also marked the first quarterly sequential unit increase in our backlog in more than three years.

"The increase in net contracts was generated despite our having approximately 22% fewer selling communities during FY 2009's third quarter than during FY 2008's third quarter: On a per community basis, our net contracts were up approximately 32%. Despite the fewer selling communities, our FY 2009 third-quarter gross signed contracts of 915 units were down just 9% from the previous year's third quarter (compared to a 40% decline in FY 2009's second quarter versus FY 2008's), and up 16% on a per community basis. This improvement, coupled with our lowest cancellation rate in over three years, drove the increase in net signed contracts.

"Typically, we sign fewer contracts in our third fiscal quarter than in our second, because our second quarter, which runs from February 1 through April 30, encompasses our primary selling season. This fiscal year, however, third-quarter net contracts exceeded second-quarter net contracts by 44%; this has occurred only three other times since we went public in 1986.

"Although some of our markets are still stuck in the mud, many are improving. While we have to work very hard for our sales, it does feel as if the fence sitters are looking for reasons to jump in on the side of buying. Price is no longer the overwhelmingly dominant factor.

"It appears that those taking this step today have more confidence than one year ago. This is reflected in our third-quarter rate of conversions of non-binding deposits into signed contracts, the highest since FY 2005, and our declining contract cancellation rate. FY 2009's third-quarter cancellation rate (current-quarter cancellations divided by current-quarter signed contracts) was 8.5% versus 19.4% in FY 2008's third quarter. This was our lowest cancellation rate since the second quarter of FY 2006, and is approaching our historic average of approximately 7% since going public.

"While the statistics above cannot be considered determinative of the luxury segment's recovery, or that of the overall home building industry, we believe they are more indicative than anecdotal.

"Many markets feel better than they did six months ago. The consumer interest we saw in April and May leveled off a bit from mid-June through mid-July, but has regained momentum more recently. As the supply of unsold housing inventory shrinks nationwide and, if consumer confidence continues to improve, we should see stronger demand: It has already positively impacted our pricing power as we are reducing incentives in many markets."