US luxury homebuilder Toll Brothers Inc beat Wall Street expectations and reported its first profit in three years on Wednesday, sending its shares up nearly 3 percent in early trading. Helped by tax gains and lower writedowns on land values, Toll reported fiscal third quarter net income of $27.3 million, or 16 cents per share, compared with a loss of $472.3 million, or $2.93 per share, a year earlier.
Excluding a tax benefit of $26.5 million related to changes in accounting estimates, the company broke even, while analysts, on average, had expected a loss of 14 cents a share, according to Thomson Reuters I/B/E/S. Some analysts, however, may have included the tax benefit that Thomson Reuters I/B/E/S stripped out.
Toll's orders fell 16 percent, although even that was better than many analysts had anticipated. The National Association of Realtors reported on Tuesday that sales of used homes fell 27.2 percent in July from June to their slowest pace in 15 years.
"Recent economic and political news continues to dampen our customers' confidence," said Executive Chairman Robert Toll in a statement. But the company transcended the weaker housing environment, primarily because they took only $12.5 million in writedowns on land that lost value, far less than analysts had anticipated and down from $115 million a year earlier.
The sharp drop in impairments is to the company's credit, said Morningstar analyst Mike Gaiden, because it means Toll was smart enough to identify and mark down its weakest assets early. But operations played a role in the surprise profit, too, Gaiden said.
Revenue slipped 2 percent to $454.2 million, but that was still much better than he and other analysts had anticipated, generating better-than-expected margins, especially as the company did a good job holding down administrative costs. "When things normalise, this company is in a very good position to deliver sound profitability," Gaiden said.
Horsham, Pennsylvania-based Toll Brothers builds in 21 states, with a focus on the move-up market. Toll shares, which have fallen about 32 percent in the last four months, touched a 52-week low of $15.57 Tuesday but were up 2.8 percent at $16.64 in early trading on Wednesday.