In typical times, a report indicating that a company's quarterly earnings fell 85% would spark a sell-off in the stock.But these are atypical times for the markets and for the economy, and Toll Brothers' (NYSE: TOL) report that Q3 EPS had dropped to 16 cents from $1.07 a year earlier, did not overwhelm Wall Street. In fact, shares closed higher on the day the report was released, Wednesday, up $1.06 to $22.15.
However, this is not to state that Toll Brothers merits possible inclusion to the typical investor's portfolio at this juncture. Toll Brothers management underscored during their conference call that visits to it developments have been "horrible," with traffic down substantially.
Further, Toll's backlog of houses under contract and not sold at the end of Q3 was $3.7 billion, down 34% from a year ago. In unit terms, the Q3 backlog totaled 4,997 homes, down 38% from a year ago.
Perhaps equally telling of poor home building / housing sector conditions was the fact that Toll refused to provide Q4 earnings guidance, citing house sale and mortgage market uncertainties, among other factors.
A company's quarterly earnings decline 85%, its backlog is down substantially - these are not signs of a home building turnaround, nor of a cyclical stock that's ripe for the picking. So what explains Wall Street's largely indifferent response? Again, these are not typical times: the report was poor, but in light of the flood of bad news from the subprime, asset-backed securities and credit markets, Toll's data point looks like a modest concern, a minor problem.
Similarly, currently economists and analysts, among other financial community members, are fixated on identifying the percentage of bad subprime loans and companion debt obligations, the ability of credit to price, and overall systemic liquidity.
Further, given the potential implications if the latter go awry, a concentration on those macroeconomic data points would seem to be the order of the day.
A company's quarterly earnings decline 85%, its backlog is down substantially - these are not signs of a home building turnaround, nor of a cyclical stock that's ripe for the picking. So what explains Wall Street's largely indifferent response? Again, these are not typical times: the report was poor, but in light of the flood of bad news from the subprime, asset-backed securities and credit markets, Toll's data point looks like a modest concern, a minor problem.
Similarly, currently economists and analysts, among other financial community members, are fixated on identifying the percentage of bad subprime loans and companion debt obligations, the ability of credit to price, and overall systemic liquidity.
Further, given the potential implications if the latter go awry, a concentration on those macroeconomic data points would seem to be the order of the day.
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Wal-Mart grows profit and cash flow in Q3, but comps still ailing
Chasing Value: Ten stocks for 2010 -- Part 2
