Toll Brothers (NYSE:TOL) reported devastating results for their fiscal second quarter amid a housing market that continues to struggle. The home builder's earnings fell from $174.9 million to $36.9 million while its revenues sank 23% to $1.17 billion. Toll also suffers from a high cancellation rate of 19%, a 40% decline in contracts, increasing unsold inventory and a backlog that decreased by 32%. These numbers paint the picture of a housing market that continues to struggle to gain foothold and engineer a turnaround.

Toll Brothers also announced that it was so uncertain about future revenues that it will not make an earnings forecast for the rest of the year. CEO Robert Toll only said that, "We continue to operate conservatively in the current difficult market. In what generally remains a soft market, there are glimmers of strength in certain territories."

Some analysts and investors were hoping that last week's rise in the mortgage applications index would provide a boost to the company's earnings. Most analysts polled pegged the company's earnings this quarter at $0.25. However, the company's earnings ended up at $0.22 as many now believe that the rise in mortgage applications is simply the result of more strict regulations - that is, more people were being rejected and reapplying.

These results are also bad news for other homebuilding and related stocks including Home Depot (NYSE:HD) and Lowe's (NYSE:LOW). Analysts were expecting these companies to turn around in the second quarter; however, the results posted by Toll Brothers suggests that the market has a long way to go before any meaningful recovery. Regardless, this is definitely a sector to watch as we wait for the housing market to report a turnaround in demand.

Related Companies
Brookfield Homes Corporation (BKS)
D.R. Horton (DHI)
Pulte Homes (PHM)