Shares of luxury homebuilder Toll Brothers Inc. (NYSE: TOL) are higher in early trading despite posting a decline in its quarterly profit. It looks like the company is still looking for the light at the end of the tunnel as lower sales and increased write-downs resulted in weak earnings results.
During the first quarter, Toll Brothers said it swung to a loss of $96 million, or 61 cents per share as the weak U.S. housing market put a curb on demand and builders were forced to slash home prices. In addition, the company reported that the number of signed contracts for new homes dropped 46% to $573.1 million from the same period last year.
Included in the company's numbers were pre-tax write-downs of $245.5 million. Excluding that, the largest U.S. luxury home builder's earnings would have been $57.3 million, or 35 cents per share. Analysts, on average, forecast a quarterly loss of 44 cents a share.
All of the recent recession chatter has accompanied a drop in consumer spending that led to a 23% drop in quarterly sales. Revenue during the first quarter slipped to $842.9 million, down from $1.09 billion in the same period last year. For the quarter, analysts were expecting the company show a revenue of $818 million.
Amid continued fears over a possible recession, with investors showing increased worries over the slumping housing market and credit crunch, Toll is one of the first major home builders to report earnings. Despite its weak earnings figures, analysts at Lehman Brothers are not disappointed and show optimism over the company's future gains.
Analyst Megan Talbott McGrath initiated coverage on the stock this morning with a "Positive" rating, anticipating improved sales trends in the U.S. homebuilding industry within the next two quarters. Although the broker believes that stocks in the sector will remain volatile as new home sales have not "reached a bottom," McGrath expects that trends will improve by the second half of 2008. She gave an "Overweight" rating to Toll Brothers with a $27 price target.
For now, it looks like McGrath may be correct in her assessment as traders have pushed shares of the stock up 2.74% in early morning trading.
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
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