Toll Bros Earnings Slip 79%

Elena
24 May, 2007
New York City

Wall Street opened mixed Thursday, reflecting better-than-expected economic data and cautiousness ahead of new home sales report. Toll Brothers'' unwillingness to provide an earnings outlook also weighed. Signs of strength in business investment offset higher-than-expected jobless claims data, with durable goods orders rising 0.6% in April, boosted by strong demand for metals and capital equipment.

[R]9:45AM U.S market averages opened mixed. Strong durable goods orders gave a boost.[/R]

Wall Street opened mixed Thursday, reflecting better-than-expected economic data and cautiousness ahead of new home sales report. Toll Brothers' unwillingness to provide an earnings outlook also weighed.

However, market sentiment improved, following data release which showed that new home sales increased more than economists had expected, boosting optimism about economic growth and corporate profits. The Commerce Department said that sales of new U.S. homes unexpectedly surged 16% in April, to a seasonally adjusted annual rate of 981,000, exceeding the 865,000 pace expected. The upbeat news helped Toll Bros ((TOL)) recover from early weakness, sending its stock up 3%. It earlier fell after reporting 79% drop in Q2 earnings.

Signs of strength in business investment offset higher-than-expected jobless claims data, with durable goods orders rising 0.6% in April, boosted by strong demand for metals and capital equipment. Among companies in focus, Dow member Boeing ((BA)) rose 2% after it affirmed its earnings outlook for 2007 and 2008. At the same time, General Motors ((GM)) dropped 1.3% after saying it sees a $7 billion exposure from helping Delphi get out of bankruptcy.

Among earnings-related movers, apparel retailers Gymboree ((GYMB)) and Abercrombie & Fitch ((ANF)) rose 11% and 3%, respectively after their quarterly results. The Dow Jones jumped 80 points to 13,606, after hitting a new record high of 13,624. The S&P 500 gained 4.5 points to 1,526, while the Nasdaq rose 4.3 points to 2,581.

[R]Initial jobless claims advanced 15,000.[/R]
The Department of Labor released its report on initial jobless claims in the week ended May 19 on Thursday, showing that jobless claims increased by more than economists had been anticipating after trending lower in recent weeks. The report showed that jobless claims rose to 311,000 from the previous week''s upwardly revised figure of 296,000. Economists had expected jobless claims to rise to 305,000 from the 293,000 originally reported for the previous week. The Labor Department also said that the less volatile four-week moving average fell to 302,750 from the previous week''s revised average of 306,250. Additionally, the report showed that continuing claims in the week ended May 12 rose to 2.529 million from the preceding week''s revised level of 2.471 million.


[R]Durable goods orders rose 0.6%.[/R]
Thursday morning, the Department of Commerce released its advance report on durable goods orders in the month of April, showing that orders for goods meant to last at least three years rose a little less than economists had been expecting. The report showed that durable goods orders rose 0.6 percent in April following an upwardly revised 5.0 percent increase in the previous month. Economists had been expecting orders to increase by about 0.9 percent compared to the 4.3 percent increase previously reported for March. The increase in durable goods orders was partly offset by a decrease in orders for transportation equipment, which fell 1.3 percent in April after surging up 13.6 percent in March. A drop in orders for commercial aircraft more than offset a rebound in orders for defense aircraft.

Excluding orders for transportation equipment, durable goods orders rose by 1.5 percent in April, matching the increase that was seen in the previous month. Orders for primary metals, fabricated metal products, and electrical equipment, appliances, and components showed notable increases. The report also showed that shipments of durable goods rose 1.9 percent in April following a 1.3 percent increase in March. The continued increase in shipments was partly due to a rebound in shipments of computers and electronic products. The Commerce Department added that inventories of durable goods rose 0.5 percent in April after rising 0.1 percent in March. Inventories of transportation equipment had the largest increase.

[R]9:00AM Stock futures pointed to a lower opening, pressured by worries about the housing market.[/R]

U.S. stock futures lost ground on Thursday, pressured by concerns over the housing market. The housing market was in the spotlight, with investors awaiting data on new-home sales and digesting unwillingness from home builder Toll Brothers to provide an earnings outlook. Durable-goods orders report is also due out today.

Luxury home builder Toll Brothers ((TOL)) reported 79% decline in Q2 net income, hurt by slowing U.S. housing market. The company said it earned $36.7 million, or 22 cents a share, down from $174.9 million, or $1.06 a share a year earlier. However, the profit beat analysts'''' average expectation of 14 cents a share. Quarterly revenue fell 19% to $1.17 billion.

In other earnings releases, apparel retailer Abercrombie & Fitch Co. ((ANF)) reported 7% earnings growth in Q1 to $60.1 million, or 65 cents per share, compared with profits of $56.2 million, or 62 cents a share a year ago. Sales rose 13% to $742.4 million from $657.3 million a year ago. Same-store sales fell 4%. Abercrombie reaffirmed its outlook for the first half of the year, saying it expects to make $1.47 to $1.52 a share.

Network Appliance (NTAP)) slipped 17% in pre-open trade after the storage-technology company released a profit warning for the current quarter. Software company CA ((CA)) dropped 5.5% on earnings outlook below estimates. Among other pre-market highlights, General Motors ((GM)) dropped 1.8% after it said it sees a $7 billion exposure from helping Delphi get out of bankruptcy. S&P 500 futures fell 1.8 points at 1,523.70 and Nasdaq 100 futures declined 3.25 points at 1,907.00. Dow industrial futures slipped 14 points.


[R]8:15AM Limited Brands posted 46% earnings drop.[/R]

Limited Brands ((LTD)) posted 46% earnings drop in Q1, due to lower-than-expected sales and margins across all its brands, particularly Victoria''''s Secret. The retailer said it earned $52.9 million, or 13 cents per share, compared with profits of $99.4 million, or 25 cents a share a year ago. Sales totaled $2.3 billion compared with $2.1 billion a year ago.

The company projected Q2 profit decline and cut its full-year earnings guidance. Limited Brands said it now expects to make 20 cents to 24 cents a share in Q2, compared with 28 cents a year ago, and that earnings for the full year would be between $1.55 and $1.65 per share, compared with its initial guidance of $1.75 per share.

The company had posted a 4% increase in April same-store sales, but it expects May''''s same-store sales to come below earlier estimates. Limited Brands announced last week that it would sell 67% of its interest in its underperforming Express apparel brand to affiliates of private equity firm Golden Gate Capital for $548 million by July.