Toll Brothers Q2 Earnings Call Highlights

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Toll Brothers (NYSE:TOL) executives said the luxury homebuilder delivered better-than-expected fiscal second-quarter results despite a challenging demand environment, prompting the company to raise its full-year guidance across key homebuilding metrics.

Executive Chairman Doug Yearley said the company “beat guidance on both the top and bottom lines” and posted another quarter of strong margins. He attributed the performance to Toll Brothers’ position in the luxury market, its expansion across geographies and price points, and its ability to balance sales pace, pricing and incentives.

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“We are, quite simply, a more efficient and less cyclical home builder,” Yearley said. “Even in a difficult market, our business continues to perform well.”

Second-quarter results top guidance

CEO Karl Mistry said Toll Brothers delivered 2,491 homes in the quarter at an average price of $1.009 million, producing $2.5 billion in homebuilding revenue. That revenue was about $110 million above the midpoint of the company’s guidance.

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Adjusted gross margin was 26.2%, 70 basis points better than guidance, while SG expense as a percentage of homebuilding revenue was 10.3%, 40 basis points better than expected. The company earned $260.6 million, or $2.72 per diluted share, which Mistry said was $0.18 above the midpoint of guidance.

Net signed agreements totaled 2,834 homes for $2.8 billion, up 7% in units and 8% in dollars from the prior-year quarter. The company ended the quarter selling from 459 communities, compared with 421 a year earlier and 386 two years ago.

CFO Gregg Ziegler said the average price of contracts signed in the quarter was about $990,600, up 1% year over year. The cancellation rate was 2.9% of beginning-quarter backlog, compared with 2.8% a year earlier, and 4.8% as a percentage of signed contracts, down from 6.2% in the prior-year period.

Luxury move-up buyers remain a key driver

Management said demand remained difficult but relatively resilient among the company’s more affluent customer base. Yearley said buyers in Toll Brothers’ segment are less exposed to affordability pressures because many have benefited from income growth, stock market gains and home equity appreciation.

Mistry said the luxury move-up business continued to perform best, accounting for 62% of home sales revenue in the quarter, up from 59% in the first quarter. Luxury first-time buyers represented 22% of revenue, while move-down buyers accounted for 16%.

“Our luxury move-up business has the highest margin among our buyer segments, so we are very pleased that it remains the largest part of our business,” Mistry said.

The company said average incentives for new contracts remained flat at 8% of gross sales price for the fourth consecutive quarter. About 23% of buyers paid all cash, while buyers who used mortgages had an average loan-to-value ratio of about 69%, consistent with recent quarters.

Regional trends show mixed demand

Mistry described Florida as a bright spot, with improved demand in all of the company’s markets in the state. He also cited strength from Boston down to South Carolina, as well as Boise, Las Vegas and Austin, Texas. Weaker markets included Atlanta, San Antonio, Seattle, Portland and San Francisco.

During the question-and-answer session, Mistry said April was the company’s strongest month of the quarter and that demand had remained consistent in the first few weeks of May. He said customers are still taking longer to make decisions, a trend he tied partly to consumer confidence at Toll Brothers’ price points.

Asked about Florida and Austin, Mistry said the strength reflected both broader market stabilization and Toll Brothers’ specific community positioning. He cited a West Palm Beach community selling homes at about $3 million on average and a north Austin community with an average sales price near $1.5 million, both producing gross margins in the low 30% range.

Guidance raised for fiscal 2026

Ziegler said Toll Brothers now expects full-year deliveries of 10,400 to 10,700 homes, raising the low end of the prior range by 100 homes. The company also lifted its expected average delivered price by $12,500 at the midpoint, to a range of $985,000 to $1 million.

Full-year adjusted gross margin guidance increased by 10 basis points to 26.1%. The company expects third-quarter adjusted gross margin of 25.25% and implied fourth-quarter adjusted gross margin of about 26.3%. Ziegler said the fourth-quarter outlook reflects a higher concentration of higher-margin luxury move-up homes and spec homes sold earlier in the construction cycle.

For the third quarter, Toll Brothers projected deliveries of 2,600 to 2,700 homes at an average price of $965,000 to $985,000. The company expects full-year SG as a percentage of home sales revenue of 10.1%, an improvement of 15 basis points from prior guidance.

Ziegler said the company ended the quarter with about $3.3 billion of liquidity, including $1.1 billion in cash and $2.2 billion of availability under its revolving credit facility. Net debt to capital was 15.4%, down from 19.8% a year earlier.

Capital returns, land strategy and leadership changes

Yearley said Toll Brothers repurchased $175 million of common stock during the quarter, bringing year-to-date repurchases to about $226 million. The company also raised its quarterly dividend and continues to target $650 million of share repurchases in fiscal 2026.

Mistry said Toll Brothers expects to end the fiscal year with 480 to 490 selling communities, including communities acquired through its Buffington Homes transaction, which closed earlier in May. He said Buffington gives Toll Brothers an entry into Northwest Arkansas, including the Fayetteville-Bentonville market, and brings about 1,500 lots in its pipeline.

The company ended the second quarter owning or controlling about 76,800 lots, 58% of which were optioned. Mistry said Toll Brothers continues to use seller financing, joint ventures, traditional option arrangements and land banking when appropriate.

Yearley also highlighted a leadership transition, noting that Rob Parahus, president and chief operating officer, will retire on June 30 and become a senior adviser. Seth Ring, a Toll Brothers veteran with more than 20 years at the company, will succeed him as president and chief operating officer.

About Toll Brothers (NYSE:TOL)

Toll Brothers, Inc is a publicly traded homebuilding company that focuses on designing and constructing luxury residential properties. The company's core business encompasses a broad range of housing products, including custom single-family homes, upscale condominium communities and rental apartment ventures. Toll Brothers emphasizes high-end finishes and architectural craftsmanship, positioning itself in the premium segment of the U.S. housing market.

In addition to traditional homebuilding, Toll Brothers operates specialized divisions to address evolving consumer preferences.

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