By Eric Rosenbaum, TheStreet.com

 

Shares of Toll Brothers (TOL) plunged after the homebuilder’s quarterly earnings missed analyst estimates by 22 cents. The stock dropped more than 7%.  

 

Toll lost $111.4 million, or 68 cents a share, in its fiscal fourth quarter because of the writedowns for decreased land values and staff reductions. In the year-ago quarter, Toll lost $78.8 million, or 49 cents a share. Analysts polled by Thomson Reuters were expecting a loss of 46 cents a share on revenue of about $450.1 million. Revenue for the quarter ended Oct. 31 fell 30% to $486.6 million from $691.1 million.

 

Toll’s loss follows disappointing results from D.R. Horton, which targets the buyers looking for lower prices. They come weeks after Toll said contracts were up 42%, based on preliminary data. The stock gained 16% that day, lifting the industry 7%.

 

Bing: More on Toll Brothers

 

Stifel Nicolaus analyst Michael Widner says the mid-November rally was unjustified. The question now is whether Toll’s number will weigh on the industry. His short-term outlook for the sector is gloomy.  

 

“They've got an uphill battle for the next few months, facing normal holiday-related slow seasonality, and diminished returns on the extended tax credit,” he says. “It could be a few months before there is a good new data point. It could be March.”

 

Widner says gross margins hit their lowest level in several years.

 

"Toll had been talking about getting pricing power back, but these numbers suggest they achieved the higher order volume by slashing prices, so they generated volume, but at what cost?" Widner says.

 

Net margins, hurt by incentives and bonuses paid to agents, were also negative for Toll. Widner says that suggests the company is losing money on each house it builds, on average.

 

Widner has a “sell” rating on the company. Still, his projections for 2010 closings and prices are higher than the company’s forecasts.

 

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