Two Major Home Builders Report Weaker Earnings Amid Slow Market
In a sign of a deepening housing slump, two major home builders yesterday reported steep declines in new orders and weaker than expected fourth-quarter results.
Luxury builder Toll Brothers, of Horsham, Pa., said home-building revenue fell by 10 percent and signed contracts were down by 55 percent compared with a year ago. The company also said it will incur a hefty charge against profits as it pares down the number of lots it controls.
Beazer Homes USA Inc., of Atlanta, reported a 44 percent decline in profit as higher revenue was offset by squeezed margins. The company said there was “significant” discounting in most markets.
New orders for Beazer fell by 58 percent to 2,064 homes from 4,937 last year, as the housing market continues to slow. The company has cut 1,000 jobs, or 25 percent of its total workforce.
“We think it’s a loss of confidence in the buyers,” Toll Brothers CEO Robert Toll said Tuesday. “Nobody wants to buy something that they think will cost less two weeks later.”
Toll said at one point he thought the housing market was bumping along at the bottom, but construction continues to slow and business continues to worsen. He noted it has had two rounds of layoffs, but didn’t say how many people were let go.
“I am surprised,” Toll said, adding that the downturn seems atypical, given good conditions for housing with low unemployment and mortgage rates.
The average rate on the 30-year, fixed-rate mortgage was just 6.31 percent last week, according to Freddie Mac, having fallen from 6.8 percent in July.
In the quarter, Toll Brothers’ home-building revenue fell to $1.81 billion from last year’s $2 billion. Signed contracts — a sign of future business — fell to $710 million from last year’s record $1.59 billion. The housing backlog declined as well, by 25 percent, to $4.5 billion.
Toll Brothers said its fourth quarter was hurt by an above-average 585 cancellations. One-fourth of the cancellations came from the Orlando housing market in Central Florida, as well as Northern California.
The Southeast region, comprising Florida and the Carolinas, saw the biggest drop in signed contracts, down 78 percent, followed by the Southwest — Arizona, Colorado, Nevada and Texas — down 62 percent.
Toll Brothers also pared back the number of developable lots it controls by about 6,500. As such, it expects to take write-downs of between $50 million and $100 million on lands owned and on option.
The company expects earnings to be reduced by 18 to 36 cents per share as a result. Toll now expects to deliver between 6,300 and 7,300 homes for 2007, down from its prior outlook of 7,000-8,000. For the first quarter, the home builder expects to deliver 1,500-1,800 homes.
For its part, Beazer said it closed 6,411 homes during the fiscal quarter, up about 1 percent from the prior year as decreased closings in Florida and the Mid-Atlantic were offset by increases in the West, Southeast and other home building segments.
The company previously said it expected closing 12,000-13,500 homses in ‘07, and sees new orders in the range of 12,000-14,000 for this period. If Beazer hits 13,500, it is forecasting 2007 earnings per share of about $3.65 — slightly below current estimates of $3.69 per share.