Thursday, March 31, 2005

Toll Bros.: Revenue, Income Down, Inventory Up

The big home builder Toll Brothers, Inc. has the quarterly financials out for the period ending January 31, 2005. Revenue was down 31% from the previous, strong quarter. Net income fell $70 million, or 38% from that same quarter.

With business slowing, the relentless increase in housing-on-hand continued. For the quarter inventory was up $267 million and increased more than $1.5 billion when compared to the period ending October 30, 2002. The stock was way up in trading on lighter than average volume.


At 1:51 PM, Anonymous Anonymous said...

Inventory = B$4.44 Sales = B$0.999 They have 4.44 quarters of investory or 1.11 years. Wow.

At 2:50 PM, Blogger Ben Jones said...

If you look back into the archives you will see I have been tracking this trend for a while. All of the big builders are in the boat...Ben

At 6:03 PM, Anonymous Anonymous said...

Is that math possibly right? Over a years worth of inventory? I suppose that includes homes under contract but not yet delivered, which would be a small part of the explanation. How much inventory have these companies typically carried in the past?

At 6:13 PM, Blogger Ben Jones said...

(Is that math possibly right?)
Yes its right. The home builders defend this with their "its never gonna end" scenario. But I suspect it is work in progress piling up on top of half full subdivisions. It is an easy number to check. Look at all of them. PHM, CTX, LEN, BZH, DHI. I have posts on this in February, I think...Ben

At 6:21 PM, Blogger Ben Jones said...

I should add the builders do have orders for houses. But to what extent the inventory is matched to that is anybodys guess. Some of these guys have more than 100,000 lots!

And my understanding is that in most states, the buyer can walk away before closing and only lose a few thousand. That happened big time with Pulte and the Las Vegas debacle last summer..Cheers-Ben

At 6:49 PM, Anonymous Anonymous said...

Are numbers available in "units" rather than total dollar amount? I'd love to know how many actual houses they are sitting on, and how many they are selling.

At 6:22 AM, Blogger Ben Jones said...

(Are numbers available in "units" rather than total dollar amount?)
That info is harder to come by. Should you find it please pass it on. Thx..Ben

At 11:03 AM, Anonymous tea said...


Quarter-to-quarter comparison is in appropriate. Housing is very seasonal and earnings are seasonal. If you compare Toll borthers' earnings to year earlier earnings, they were blockbuster.

This is not deny that things wont end end up in tears ultimately. But I wouldnt expect Toll Brothers to be the first to show trouble. They cater to the very upper end and interest rates are not going to hit them first. The first sign of trouble will be in the lower-end starter homes.

At 11:07 AM, Anonymous dry fly said...

Did anyone notice this in their reporting...

Not only is the inventory growing... their acid ratio is sinking...

Current Asset............$639.4M
.... Less Inv.
Current Liabilities....$1,255.7M

I cross posted this on Calculated Risk comments section too... This 'detail' might actually become a larger factor than just the inventory pinch... if they don't move product... they are likely to face a serious 'cash crunch' that will force them into a 'fire sale' and if other builders are in the same boat will be forced to follow...

You could see some very ugly declines... in home prices & stock prices.

I would not want to work in one of their sales offices... or be a sub-contractor owed money... yikes.

At 11:15 AM, Blogger Ben Jones said...

Hi Tea, thanks for commenting.

(If you compare Toll borthers' earnings to year earlier earnings, they were blockbuster.)
True, and the stock holders have been rewarded. But have you seen the charts for HBs? Parabolic rises usually end with parabolic declines.

(I wouldnt expect Toll Brothers to be the first to show trouble.)
Thats a great point, and I will keep it in mind. The HBs do do work in various incomes and regions. Please see my post on Toll insider selling.

At 11:22 AM, Blogger Ben Jones said...

hi there dry fly!

(their acid ratio is sinking...)
I did see that.The HBs cash/inventory/debt situation has been deteriorating for a while; in my opinion, ever since the 2003 boom in mortgages.

I have an accounting background but I hesitate to get too technical in my posts. You are greatly adding to the discussion, thanks for the help...Ben


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