Toll: Layoffs possible if slump worsens

The home builder reported significant declines in orders and revenue. Still, its share price rose.

Posted: August 09, 2007

Toll Bros. Inc. said yesterday that it would look to lay off employees before reducing home prices if the nationwide housing slowdown deepened.

"If things got tougher, we would look more at shedding overhead costs - unfortunately, eliminating employees, doing the tough stuff that management is supposed to do in order to balance the ship," said Robert Toll, chairman and chief executive officer, in response to an analyst's question during a conference call. The analyst asked about Toll's declining number of orders for houses.

Toll, the Horsham builder of luxury homes, said its second-quarter orders, backlog and revenue all fell significantly.

The company thinking, he said, is that it does not want to sell homes at a lower rate than they are inherently worth. Meanwhile, it will try to ride out the nationwide slowdown in housing sales, caused largely by disruptions in the mortgage industry, by cutting costs. Many financial institutions have tightened their lending standards in response to an increase in mortgage defaults across the country.

The company said revenue was down 21 percent from the same quarter a year earlier to $1.2 billion.

Backlog at Toll Bros. for the quarter ended July 31 fell 34 percent to $3.6 billion, and signed contracts declined 31 percent to $727 million.

The company, which builds homes in 22 states, will report its official quarterly earnings Aug. 22.

Meanwhile, the National Association of Realtors lowered its forecast yesterday of existing home sales for 2007 by 1.1 percent. The NAR also said it expected the median price of new homes to fall this year 2.3 percent to $240,800, but to rise next year 2.3 percent. The median is the midpoint, with half the houses selling for more than that, and half for less.

Also yesterday, the Mortgage Bankers Association said applications for home loans in the United States rose last week 8.1 percent, the biggest increase since January.

Toll's cash on hand remains strong, said Michael Rehaut, an analyst with J.P. Morgan Securities Inc. Toll Bros. ended the quarter with more than $700 million in cash compared with $553 million last quarter.

But the number of home buyers backing out of signed contracts at the last minute is likely to rise in the coming months, said Daniel Oppenheim, analyst with Bank of America Corp.

"We think this will cause a surge in cancellations for Toll and other home builders . . . resulting in even higher inventories and further pressure on home prices," Oppenheim said.

Toll Bros. shares gained $1.38, or 6 percent, to close at $24.33 on the New York Stock Exchange as the company's results beat analysts' estimates.

The company's vice chairman is Bruce Toll, Robert's brother. Bruce Toll also is chairman of Philadelphia Media Holdings L.L.C., which owns The Inquirer, the Daily News and

Contact staff writer Joseph Galante at 215-854-5194 or

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