Toll Brothers Inc. (TOL) on Tuesday disclosed its third straight quarterly loss for the quarter ended April 30, 2008. TOL lost $93.7 million or $.59 per share, but the results were well ahead of Wall Street estimates, which called for a loss of $.89 per share. The company claimed a pre-tax write-down of $288.1 million from declining land value and marking inventory to market. As if that was not enough, revenue fell 30% to $818.8 million from $1.17 billion a year ago. The future is worrisome as well as net contracts dropped 58% in the quarter. All in all—even though Toll beat Wall Street estimates—the quarter was extremely rough for the nation’s largest luxury home builder.

The conditions in the housing market have significantly deteriorated since late 2005 and buyers are hesitant to enter the market for fear that the slide in home values will continue. There is an over-abundance of unsold homes and write-downs on land acquired at the height of the boom are crippling homebuilders’ bottom lines. From the beginning of the third quarter 2007 through the first quarter of 2008, the top eleven homebuilders have written-down $22.9 billion.

CEO’s of virtually every major homebuilder think the struggles are likely to continue, as D.R. Horton’s CEO Don Tomnitz stated, “I believe the industry will continue to face rising pressures for certainly the next 12 to 18 months, 2010 will be the earliest we get a more solid homebuilding environment.”   As for Toll Brothers’ CEO Robert Toll, he was reluctant to make any predictions but he did call for government action to curb the housing skid. He thinks that Congressional action to sweeten incentives for home buyers would be more constructive than focusing specifically on home-owners currently struggling with past-due mortgages.

In my opinion, asking for a government bailout was an attempt by Toll to distract the media from TOL’s abysmal financial results over the last 3 quarters. Mr. Toll knows that markets fluctuate but find equilibrium when prices fall far enough to entice buyers back in. While he does not want to endure the painful quarters that may lie ahead–if pressed–I doubt that he really wants the government intervening in his business to this degree. Especially considering the pace of legislation, the market could be well in a recovery phase when the new government incentives take effect.

Currently, Ockham Research has a Hold on the company because from a value perspective it is neither overvalued nor undervalued considering cash flow and sales metrics. However, considering the CEOs warnings we would be very cautious about buying a homebuilder at this time. There may be substantial long-term value in homebuilders once the residential real estate market recovers, but very few are willing to concede that a recovery is coming soon. Lastly, do not count on Congressional action to bailout the homebuilders.