Toll Brothers Warn Investors

When it comes to investors, bad news must be shared and Toll Brothers had to prepare them for what it hopes will be the worst.

The company said in a preliminary report Wednesday that its home building sales fell 34.0% in the fiscal third quarter, amid a prolonged housing slump. It also expects $100.0 million to $200.0 million in write-downs during the quarter, related to operating communities, land options and joint ventures.

“Our third-quarter results for revenues, contracts and backlog reflect the continued weakness in most of our markets,” Chief Executive Robert Toll said in a statement to the press. The company plans to announce its final results on Sept. 4.

The housing market has been spinning out of control for the last two years, causing many homeowners to default on loans and abandon their homes. The state of the market has pushed many home builders into bankruptcy. Last week, WCI Communities was the latest to go under.

The company’s home building sales for the three months ending July 31, its third quarter, fell to $796.5 million from $1.21 billion last year. Analysts polled by Thomson Reuters expected, on average, third-quarter sales of $717.6 million.

Yet-to-be-fulfilled orders fell 52.0% to $1.8 billion from $3.7 billion a year ago. Net contracts, or gross contracts minus cancellations, fell 35.0% to $469.7 million from $727.0 million a year ago. Toll Brothers (nyse: TOL – news – people ) said it was not comfortable providing guidance, “given the state of the market.”

Frederick Cooper, a spokesman for the builder, told Forbes.com that the firm didn’t release numbers related to its outstanding inventory, but will later in the year. Unsold homes create a serious drag on builders as they are forced to pay maintenance and insurance on their glut and the excess drives down home prices. (See “Falling Prices Haunt New Houses.”)

Luckily for them, home builders caught a break this summer from Uncle Sam. Chief Executive Robert Toll said that the passage of the Housing and Economic Recovery Act of 2008 “offered a lifeline to many homeowners facing foreclosure, which should help keep more people in their homes and fewer distressed properties from coming on the market.” (See “The Home Builder Relief Act of 2008.”)

Toll said the bill provided an “incentive to new customers to move off the fence and become first-time buyers,” which “may help to restore confidence in the market.”

Shares of Toll Brothers were up slightly, rising 0.9% or 20 cents, to close at $20.84 in New York.

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