One on One with Robert Toll of Toll Brothers
Tuesday, December 05, 2006
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SUSIE GHARIB: One of the nation's biggest homebuilders, Toll Brothers, says it's seeing signs of an end to the housing slump. That sent shares of the company up 3 percent today, even though it reported a 44 percent drop in quarterly earnings. Toll Brothers made $1.07 a share in its fiscal fourth quarter. That's down $0.77 from the same period a year ago, but a penny higher than Wall Street estimates. A short while ago, I talked with Toll's chairman and CEO Robert Toll and began by asking him if he expects earnings to recover in 2007.
ROBERT TOLL CHAIRMAN & CEO, TOLL BROTHERS: No, as a matter of fact, I think the estimated projection was for earnings to come in at around $2 and that would be less than half of what the earnings were in '06, I think. So obviously we don't expect the earnings to return in '07.
GHARIB: Mr. Toll, you said today that you're seeing quote, a floor in the housing slump. Can you elaborate a little bit on what you're seeing?
TOLL: I didn't go quite that far. I would have liked to. I said we've got an indication and it seems as though we are no longer bouncing along on the bottom as we had been in probably our most serious market, the northern Virginia, Maryland, DC suburbs and that we appear to be dancing a little bit above the bottom right now so who knows. It may offer us a glimmer of hope for the coming selling season, which begins in January or not. But it's better than what we've been seeing.
GHARIB: Tell us a little bit for your company about inventory levels, about order trends and about home prices. How would you characterize them?
TOLL: Well, inventory is way up. Of course, the cancellations this past year in a number that's probably five times the ordinary number that we see in cancellations in an ordinary market. We've got more inventory than we want or had hoped to have. Generally standing inventory is discounted, so prices drop for speculative inventory. For homes to be built, we're pretty much holding our price. I mean, there's some incentives, but we believe the ground is terrific ground and we'd rather wait for the market to return.
GHARIB: So what do you see as the outlook for 2007? More of the same?
TOLL: No, I don't, but I can't say that I have any clairvoyance to predict what's going to happen in the future. So I can't say that I see more of the same, more of the better or more of the worse. It appeared to us from what I just said about the northern Virginia/Maryland market around DC and from what we've witnessed in the metro New York market and Raleigh and Charlotte and Texas and from understanding the macroeconomic scene today, that we're hopeful that '07 is going to be better than '06 was by a bunch, but too soon to tell.
GHARIB: You've been through many downturns in the past with cycles of the whole housing industry. How do you think that this recovery is going to take shape? Is it going to bounce back or do you see just a gradual grind?
TOLL: No, I don't think it's going to be a gradual grind. I do think it's going to bounce back. We're in a very different situation than we have ever been in before during the past four or five housing downturns, depending upon how you score them. Hereto for, every housing downturn was accompanied by a bad economy, by high interest rates, by high unemployment. Now you've got interest rates almost at the bottom. These interest rates are lower than they were when I went in the business in 1967. You've got very low unemployment. You've got a stock market booming. So all the ingredients to have a very rapid recovery are in place and I suspect you will see a rapid recovery once the pent-up demand understands that if they don't buy now, they may miss an excellent opportunity to buy a home with a low mortgage rate.
GHARIB: I want to ask you about your stock, because you mentioned on the conference call today with analysts that you're not satisfied seeing Toll's stock down 44 percent since its July levels. How much longer do investors have to be patient before they see Toll Brothers stock move back up to, like, the $50 level?
TOLL: I wish I had the answer to that. I wouldn't even attempt an estimate.
GHARIB: So what do you think it's going to take to get the stock to move higher, then?
TOLL: My mother used to ask me that question on my way to work in the morning and I would say more buyers and sellers, mom.
GHARIB: All right, well, I hope that that trend turns for you. Thank you so much, Mr. Toll.
TOLL: Thank you.
