Toll Brothers reported its Fiscal Q1 earnings this morning. Year over for the quarter: Revenues declined nearly 1%, operating income plunged 46.8%, net income dropped 4.1%. Net income was boosted by the reliable accounting management technique of reducing the estimated GAAP “effective” tax rate, which enables any management to goal-seek a specific net income number. In this case the goal is to “beat” the Street. Margins were down across the board.
Oh ya, TOL pulled another stunt that homebuilders use to pump up GAAP net income: it increased the amount of interest it capitalized by $6 million dollars. This has the effect of boosting operating income by $6 million compared to the same quarter last year because it reduces the amount of GAAP interest expense by the amount that was capitalized. It did this despite a drop in sales. Its net income would have missed the Street by a suburban mile if it had just maintained the same rate of interest expense capitalized.
For this, the stock jumped up 6% this morning at the open.
The Company blamed the drop in operating income and margins on inventory write-downs. But these have been occurring every quarter recently and will of course continue going forward. That write-down only explains $4 million of the $44 million plunge in operating income.
There’s so much more going in TOL’s numbers which point to the continued economic deterioration in its business model. I will be reviewing this further in this week’s issue of the Short Seller’s Journal, including which put options TOL I bought this morning.
Too many layoffs and store closure news to mention but I’ve realized that there are a lot of school-district (including teachers) layoffs and colleges, or even hospitals staff layoffs. CSX just posted 1000 management level position cuts – link. By the way, thanks for the Short Seller’s journal, very informative. – note yesterday from a subscriber