August 12, 2009 / 12:21 PM / in 8 years

UPDATE 4-Toll Brothers shares jump as outlook brightens

* Posts first increase in contracts in 16 quarters

* Says homebuyers less concerned about price

* Q3 homebuilding revenue $461.3 mln

* Shares up almost 14 pct (Adds conference call comments; updates share activity)

By Nick Zieminski

NEW YORK, Aug 12 (Reuters) - Luxury home builder Toll Brothers Inc (TOL.N) said on Wednesday that quarterly net signed contracts increased for the first time in four years as home buyers appeared more confident and less concerned about prices, sending its shares up almost 14 percent.

Toll said preliminary results for the third quarter ended July 31 showed a 42 percent drop in homebuilding revenue to $461.3 million.

But net signed contracts rose 3 percent to 837 units, although their dollar value declined. The company said this was the first time in 16 quarters that net signed contracts had exceeded year-earlier figures.

Horsham, Pennsylvania-based Toll also noted that signed contracts improved from its April quarter, even though they typically decline from the second quarter to the third.

Toll’s cancellation rate was 8.5 percent in the quarter, down from 19.4 percent a year earlier and the lowest since the second quarter of 2006. Historically, its typical cancellation rate is about 7 percent.

However, the cancellation rate was higher among the more expensive contracts, a sign that some luxury buyers remain cautious. The average value of net contracts signed was $535,000, but was far higher for cancellations, at $704,000.

CONFIDENT HOME BUYERS

The more upbeat mood was audible at the start of the company’s afternoon conference call, when Chief Executive Robert Toll hummed the conference call hold music, which he identified as “The Marriage of Figaro.”

A stronger U.S. stock market has helped the luxury housing market stabilize, Toll told analysts on the call.

“The stock market has been going up; most of the upscale luxury home is impacted one way or the other with the stock market,” he said, though he added that customer traffic “still stinks.”

Toll also said buyers were less concerned about prices, instead asking more questions about options on the home and the home’s location, and noted the company was able to scale back incentives in some markets.

Asked if that meant he had more confidence in the company’s margins, Toll answered: “Yes. You take away from incentives (it‘s) the same thing as raising your price.”

The lower cancellation rate and the comments about prices “support our view that the company is gaining sufficient share to more than offset weakness among high-end buyers,” UBS analyst David Goldberg said.

Meanwhile, the company estimated third-quarter pretax writedowns for operating communities, land and land options, and joint ventures at $90 million to $160 million, which Barclays analyst Megan McGrath called higher than expected.

They include significant writedowns on land Toll plans to sell.

The company plans to release full third-quarter results on Aug. 27. Analysts on average expect the quarterly loss to widen to 40 cents per share, from 18 cents a year earlier. Earnings per share estimates range widely, from a 3-cent profit to a 77-cent loss, partly reflecting uncertainty about the extent of writedowns.

Toll shares were up $2.84, or 13.9 percent, to $23.32 in late trading on the New York Stock Exchange.

Including Wednesday’s advance, the stock is up about 68 percent from its low in November. But a broader index of home construction stocks .DJUSHB has more than doubled in that time. That index was up 5.0 percent in late trading.

Toll’s lag against the index since November shows investors’ concern about the luxury end of the housing market, analysts have said. (Additional reporting by Ajay Kamalakaran, editing by Gerald E. McCormick and Lisa Von Ahn)

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