Wednesday, June 25, 2008

Robert Toll: Harsh but Real?

Take a look at a few recent quotes from Toll Brothers CEO Robert Toll:

From MarketWatch (5/13/08):

"When we have held promotions, buyers have come out to play and put down deposits. Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm and they don't take the next step of going to contract," said Toll, the CEO. "They, like all of us, read the papers and watch TV, both of which keep advising them that home prices are declining."

Conference Call Transcript (6/3/08):

“Demand continues to be weak in most markets as our clients worry about selling their existing homes or entering the market before prices stabilize.”

“We believe Congress should jump-start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices. As we have said before, we favor a tax incentive for all those who buy homes within nine months of the Bill's passage; this would create a sense of urgency. Interest rates are low, supply is abundant and a buyer's market prevails. With a little motivation, the new home market could turn around, which would have a very positive impact on banks, bond prices and many other areas of the economy. Once home prices stabilize, Congress could then more successfully address mortgage issues; however, without stabilization of home prices, trying to address mortgage issues may be difficult at best.”

From the AP, (6/4/08):

"Can the market go down another 10 or 20 percent? Sure."

"There's a whole bunch of them [materials] that's oil based ... I see costs going up from here. So we're caught in a squeeze. Certainly, our clients aren't going to pay more money because our costs our going up."

From a CNBC interview during the Bank of America Homebuilders Conference (6/19/08):

“What I found is a market that was slow.” [after visiting project sites]

Paraphrasing here- “The U.S. Census Bureau is overstating the action in the market by 1/3” – referring to the U.S. Census apparently not including cancellations in a down market.


As for the market today: May new home sales came in at 512,000- a bit below expectations. And there is still no sign of any forthcoming strength here.

The question I ask: Does Bob Toll’s straightforwardness have something holding Toll Brothers over $20/sh? Over the past year TOL has beaten the (maybe I shouldn’t use that word—more like has not sustained a loss as large as the…) XHB index. Stuart Miller, CEO of Lennar has deemed the market as challenging and difficult as well, and Lennar’s stock has plummeted to another level compared to TOL. Both have been increasing cash on the balance sheet and TOL has been paying down some long term debt.

So, do you attribute the somewhat remarkable sustainability of TOL to Mr. Toll or is this just a perk of being a top ‘best of breed’ (if there is one right now) U.S. homebuilder? Or is it just a matter of time until their inventory/sales ratio catches up to the stock?

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