Toll Brothers Ekes Out Profit, Plans to Buy Distressed Properties

Leading home builder Toll Brothers showed a small profit in the third quarter of 2010 for the first time since 2007, thanks to tax breaks and smaller writedowns. Toll Brothers' strong cash position will allow it to take advantage of distressed property sales and be ready for quick growth as the market stabilizes. The company's announcement may indicate that the housing market is skidding along a bottom, a significant milestone for homebuyers, particularly those looking for a new house.

Analysts were expecting Toll Brothers to report a loss in the third quarter, but instead it reported a profit of $27.3 million or 16 cents per share. A year earlier its loss was $472.3 million or $2.93 per share.

The primary reason for this huge difference is that Toll Brothers aggressively wrote down the value of its land holdings last year. In 2009, its writedowns totaled $115 million for the same quarter, but writedowns in the third quarter of 2010 were only $12.5 million. Its pretax income in the third quarter was $13.3 million versus $3.7 million in the third quarter of 2009.

"Due to our very low leverage and significant cash position, we have the flexibility to opportunistically pursue transactions that are arising from the current distress in the real estate industry," CEO Douglas C. Yearley Jr. said in a statement released with the earnings report. In fact Toll Brothers announced the formation of Gibraltar Capital and Asset Management Corp. so that it can scoop up distressed assets at bargain prices.