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Toll Brothers, Inc. (TOL)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY25 delivered mixed results: revenues of $1.859B on 1,991 deliveries with diluted EPS of $1.75; adjusted home sales gross margin beat guidance (26.9% vs 26.25% guide) but EPS came in “below expectations” due to $22.6M of impairments and a delayed JV apartment sale, while core homebuilding met plan .
  • Demand remained resilient: net signed contracts rose 12% y/y to $2.31B (units +13%), cancellations stayed low (2.4%), and management reaffirmed all key full‑year homebuilding guidance (deliveries, ASP, adj. GM, SG&A, community count) despite a “mixed” spring selling season .
  • Balance sheet/liquidity strengthened: revolver upsized to $2.35B and extended to 2030; term loan extended to 2030; period-end cash was $575M with $1.77B revolver availability; net debt-to-capital 21.1% .
  • Near-term catalysts: reaffirmed FY25 guidance and Q2 guide (2,500–2,700 deliveries; 27.25% adj. GM), improving incentive trend into early Q2, and a subsequent 9% dividend increase to $0.25/share announced Mar 11 (post-quarter) .

What Went Well and What Went Wrong

  • What Went Well

    • Adjusted home sales gross margin beat: 26.9% vs 26.25% guided (+65 bps), driven by mix, operating efficiency and slightly better spec margins; all regions and product segments exceeded expectations .
    • Order momentum/end-market resilience: net contracts $2.31B (+12% y/y), units +13%; deposit conversion ratio reached 82% (vs 5‑yr avg 70%); cancellations were 2.4% of beginning backlog, an industry-low .
    • Guidance reaffirmed and strong liquidity: maintained FY25 targets for deliveries, ASP, adj. GM (27.25%), SG&A (9.4–9.5%), community count growth; revolver and term loan extended to 2030 and revolver capacity increased by ~$400M .

  • What Went Wrong

    • EPS below expectations: Q1 diluted EPS $1.75 and net income $177.7M were hit by $22.6M impairments and a delayed sale of a stabilized apartment JV asset; JV/other income missed plan, now expected to close in 2H FY25 .
    • Margin/expense pressure: home sales GM 25.0% (vs 27.6% y/y), SG&A was 13.1% (40 bps above guidance) due to lower fixed-cost leverage and higher selling/marketing in a seasonally low-revenue quarter .
    • Mixed spring selling season: affordability constraints and growing inventories in certain markets pressured sales at lower price points; Phoenix, parts of Florida, San Antonio showed softness (though some recent improvement noted) .

Financial Results

Metric (Units/Scale)Q3 FY2024Q4 FY2024Q1 FY2025
Total Revenues ($USD Millions)$2,728.0 $3,333.5 $1,859.1
Home Sales Revenues ($USD Millions)$2,724.5 $3,260.0 $1,840.7
Diluted EPS ($)$3.60 $4.63 $1.75
Deliveries (Units)2,814 3,431 1,991
Average Delivered Price ($)$968,200 $950,200 $924,600
Home Sales Gross Margin (%)27.4% 26.0% 25.0%
Adjusted Home Sales Gross Margin (%)28.8% 27.9% 26.9%
SG&A (% of Home Sales Rev.)9.0% 8.3% 13.1%
Net Signed Contracts ($USD Millions)$2,407.5 $2,659.3 $2,307.2
Net Signed Contracts (Units)2,490 2,658 2,307
Backlog ($USD Millions)$7,066.6 $6,467.8 $6,938.4
Backlog (Units)6,769 5,996 6,312

Segment breakdown – Q1 FY2025 (homebuilding only)

SegmentUnitsRevenue ($USD Millions)ASP ($)
North247 $254.7 $1,031,200
Mid-Atlantic266 $236.2 $888,100
South596 $506.3 $849,500
Mountain663 $556.7 $839,700
Pacific219 $287.1 $1,311,200
Total1,991 $1,840.7 $924,600

KPIs and operating metrics

KPIQ3 FY2024Q4 FY2024Q1 FY2025
Cancellations (% of beginning backlog)2.4% 2.5% 2.4%
Deposit conversion ratio——82%
Cash buyers (% of closings)—28% 26%
LTV on financed buyers—~69% ~68%
Spec share of sales (deliveries)——55% (52%)
Period-end community count404 408 406
Lots owned/optioned (approx.)~72.7k ~74.7k ~77.7k

Incentive trend

PeriodAverage Incentive per Home ($)
Q4 FY2024$68,000
Q1 FY2025$62,000
Start of Q2 FY2025$55,000

Guidance Changes

MetricPeriodPrevious Guidance (Dec 9, 2024)Current Guidance (Feb 18, 2025)Change
Deliveries (units)FY202511,200–11,600 11,200–11,600 Maintained
Avg Delivered Price ($)FY2025$945k–$965k $945k–$965k Maintained
Adjusted Home Sales GM (%)FY202527.25% 27.25% Maintained
SG&A (% of home sales)FY20259.4%–9.5% 9.4%–9.5% Maintained
Period-end Community CountFY2025440–450 440–450 Maintained
Other income/JV/land profitFY2025$110M $110M Maintained
Tax rateFY2025~25.5% ~25.5% Maintained
Deliveries (units)Q2 FY2025—2,500–2,700 New
Avg Delivered Price ($)Q2 FY2025—$940k–$960k New
Adjusted Home Sales GM (%)Q2 FY2025—27.25% New
SG&A (% of home sales)Q2 FY2025—10.3% New
Other income/JV/land profitQ2 FY2025—~$0M (break-even) New
Tax rateQ2 FY2025—26.0% New
Period-end Community CountQ2 FY2025—415 New

Note: Q1 FY2025 actuals vs Q1 guidance – adjusted GM outperformed (26.9% vs 26.25%), SG&A missed (13.1% vs 12.7%) .

Earnings Call Themes & Trends

TopicQ3 FY2024 (Prev‑2)Q4 FY2024 (Prev‑1)Q1 FY2025 (Current)Trend
Incentives—Incentives temporarily increased (~$12k; ~6.7% of ASP) to move finished specs; plan to reduce into spring .Avg incentive fell to $62k in Q1; ~$55k to start Q2; willing to flex by market .Easing from Q4 spike .
Spec strategy/margins—Spec ~200 bps below avg GM; build‑to‑order ~200 bps above; balanced mix supports ROE .Specs ≈55% of sales, 52% of deliveries; ~3,200 specs framing+; moderating new spec starts, managed by community .Cautious on starts; margin spread intact .
Regional demand—Strength in Northeast, Dallas/Houston; softness in Austin, Phoenix caution; Florida mixed .Strong in North/Mid‑Atlantic and California; softness in parts of FL, Phoenix, San Antonio; signs of recent improvement in some soft markets .Mixed but stabilizing in select markets .
Rates/affordability—Not assuming rate cuts in FY25; affluent buyer base less rate-sensitive; 28% cash, ~69% LTV .26% cash; ~68% LTV; buyers accepting rates; affordability pressures at lower end in some markets .Stable buyer resilience .
Orders outlook—Q1 pace trending better than typical seasonal decline; ~2.4–2.5 orders/comm/month indicated .Expect ~3,000 Q2 net contracts; balance pace/price; not “margin proud” .Stable to improving cadence .
Land & community growth~72.7k lots owned/optioned; 404 communities .74.7k lots; target 8–10% community growth to 440–450 by FY25 YE .77.7k lots (56% optioned); will trim land spend if mixed conditions persist; targeting 440–450 by YE .Larger, more optioned lot base; disciplined spend .
Capital allocation—FY25 buyback target $500M; strong cash flow expected .Reaffirms $500M buybacks targeted; expects bulk later in year; Q1 repurchased ~$23.7M .Ongoing returns to shareholders .

Management Commentary

  • “While our net income and earnings per share came in below expectations, this was due primarily to impairments and a delay in the sale of a stabilized apartment property in one of our joint ventures. Our core homebuilding operations met expectations in the quarter.” — CEO Doug Yearley .
  • “We signed 2,307 net contracts for $2.31 billion… up 13% in units and 12% in dollars… While demand was solid… we have seen mixed results so far this spring selling season… Based on our first quarter results… we are reaffirming all key homebuilding guidance for the full year.” — CEO Doug Yearley .
  • “Q1 adjusted gross margin was 26.9%, 65 bps better than guidance… due primarily to mix, increased operating efficiency and slightly better margin from sell and settle spec homes.” — CFO Marty Connor .
  • “We improved our already strong balance sheet and liquidity by extending the maturity dates of our term loan and revolving credit facilities to February 2030 and increasing the capacity of our revolver by nearly $400 million.” — CEO Doug Yearley .

Q&A Highlights

  • Spec inventory and starts: Management is comfortable with ~3,200 specs at framing+ and ~1,000 completed; moderating new spec starts on a community-by-community basis to align with seasonality and local demand .
  • Mixed demand and pricing posture: If the spring remains mixed, land spend will be reduced and underwriting tightened in certain markets; company will flex price/incentives to balance pace and returns, not “margin proud” .
  • Margin confidence: Q2 adj. GM guided to 27.25% on favorable mix (more Pacific/luxury); full-year 27.25% assumes current mixed conditions; specs roughly ~200–250 bps below average margin, build-to-order ~200 bps above .
  • Orders cadence: Expect ~3,000 Q2 net contracts (~2.4 per comm./month) without assuming rate relief or material incentive pullback .
  • Incentives: Average incentives trended down from $68k (Q4) to $62k (Q1) to ~$55k entering Q2; will vary by market; signs of demand elasticity where incremental incentives produce response .

Estimates Context

  • S&P Global consensus data for Q1 FY2025 (EPS, revenue, margins) was unavailable due to an SPGI request limit at time of query. As a result, we cannot quantify the magnitude of the beat/miss versus consensus here. Management noted EPS came in “below expectations” due primarily to impairments and the timing shift of a JV sale, while core homebuilding met expectations .
  • Implications: With full-year homebuilding guidance reaffirmed and JV sale proceeds pushed to 2H, estimate revisions may focus on quarterly phasing (lower Q1/near-term other income; more 2H), not full-year totals; Q2 “other income/JV/land” guided to break-even, with FY still $110M including several stabilized apartment sales in 2H .

Key Takeaways for Investors

  • Core homebuilding performed to plan; the EPS shortfall was largely non-core (impairments, JV sale delay). Full-year homebuilding guidance held across all key metrics, supporting earnings durability despite near-term noise .
  • Mix and operational improvements are supporting margins; Q2 adj. GM 27.25% and FY adj. GM 27.25% guide look credible given backlog composition, known spec costs, and easing incentives entering Q2 .
  • Demand remains solid among affluent buyers (26% cash; ~68% LTV); cancellations low; but affordability/inventory pressures persist in certain markets, necessitating localized incentive/pricing action .
  • Capital allocation remains supportive: FY25 buyback target $500M, Q1 buybacks ~$24M; revolver upsized/extended and term loan extended to 2030; subsequent 9% dividend increase to $0.25 boosts shareholder returns .
  • Watch Q2 execution: order cadence (~3,000 targeted), margin realization on specs (spread vs BTO), and market-by-market elasticity as incentives modulate; Q2 “other income” at break-even shifts EPS mix more to core homebuilding in 1H .
  • Medium term: Larger, more optioned land pipeline (77.7k lots; 56% controlled) and community count growth (target 440–450 by YE) sustain volume visibility while preserving capital efficiency and returns .
  • Narrative drivers: reaffirmed full-year guide despite mixed conditions, improving incentive trend, and capital return momentum (dividend hike) are likely focal points for the stock near-term .