Trevor Allison

Trevor Allison inquired about the drivers behind Toll Brothers' better-than-seasonal fourth-quarter order growth and the company's outlook for first-quarter orders relative to normal seasonality.

Answer

CFO Gregg Ziegler attributed the strong fourth-quarter order growth to performance across various geographies and buyer segments, particularly the north region. Chairman and CEO Douglas Yearley elaborated on the conservative SG&A guide, noting that 50 basis points of the increase are due to lower revenue leverage, and 25 basis points are from inflation, healthcare, and modestly elevated sales commissions. Yearley also stated that lot costs are expected to be flat in 2026, with opportunities for renegotiation in a softer market.

Trevor Allison questioned the significant sequential increase in fourth-quarter orders, which outperformed normal seasonality, and asked about the drivers behind this. He also sought insight into Toll Brothers' perspective on new home inventory levels at its price points, particularly in markets with broader overbuilding concerns.

Answer

Gregg Ziegler, CFO, noted that the fourth-quarter order growth was observed across various geographies and buyer segments, with the North region exceeding expectations. Douglas Yearley, Chairman and CEO, clarified that new home inventory concentration is primarily at the entry level, not at Toll Brothers' luxury price points. He highlighted limited resale and new home competition in key markets like the Boston-Northern Virginia corridor and coastal California, where Toll Brothers continues to perform strongly.

Trevor Allison asked about the input cost inflation rates observed in the plumbing business during Q3 and expectations for Q4, specifically mentioning metals. He also inquired about the DIY paint market, asking where Masco stands in terms of pull-forward versus deferral and if the category can return to growth in fiscal 2026 after several years of declines.

Answer

Rick Westenberg, VP and CFO, stated that Q3 plumbing input cost inflation was low single-digit, primarily driven by copper, with similar low single-digit inflation expected for the full year. Jon Nudi, President and CEO, linked DIY paint softness to near three-decade lows in existing home sales, but expressed confidence in long-term fundamentals. He highlighted the significant opportunity in the pro-paint business, which is approaching 50% of Behr's business, and the potential for DIY paint to improve as existing home sales recover.

Trevor Allison asked about the input cost inflation rates in the plumbing business for Q3 and Q4, particularly for metals like copper, and inquired about the state of the DIY paint market regarding pull-forward versus deferral, and its potential for growth in fiscal 2026.

Answer

VP and CFO Rick Westenberg reported a low single-digit inflationary impact in Q3 for plumbing, mainly due to copper, expecting similar for the full year. President and CEO Jon Nudi linked DIY paint softness to low existing home sales, expecting long-term fundamentals to improve with consumer confidence and interest rates. He also highlighted the significant growth opportunity in the pro-paint business.

Trevor Allison of Wolfe Research LLC inquired about the absorption rates of newly opened communities and the expected cadence of community count growth for the remainder of 2025 and into 2026.

Answer

CEO Phillippe Lord confirmed that the 50 new communities opened in Q2 met expectations, contributing to the strong 4.3 net sales per month pace. He projected that community count growth would be evenly distributed in Q3 and Q4, leading to double-digit growth for 2025, with similar growth anticipated for 2026. EVP & CFO Hilla Sferruzza clarified this growth would be between 10% and 20%.