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Toll Brothers, Inc. (TOL)·Q3 2025 Earnings Summary

Executive Summary

  • Record Q3 home sales revenue of $2.94B, with diluted EPS of $3.73; both beat S&P Global consensus (Revenue: $2.86B*, EPS: $3.60*) as Toll executed a price-over-pace strategy and delivered 2,959 homes at a $974K ASP .
  • Margins compressed year over year (home sales gross margin 25.6% vs. 27.4%), but adjusted gross margin of 27.5% and SG&A of 8.8% both exceeded guidance by 25 bps and 40 bps, respectively, reflecting cost controls and favorable mix .
  • Guidance: Full-year deliveries tightened to ~11,200 (low end of prior range), while full-year adjusted gross margin (27.25%) and SG&A (9.4–9.5%) were maintained; tax rate lowered to 25.1% .
  • Backlog value fell 10% YoY to $6.38B and units fell 19% to 5,492, though backlog ASP rose to $1.161M; spec strategy provides near-term delivery visibility and flexibility into FY26 .

What Went Well and What Went Wrong

What Went Well

  • Record third-quarter home sales revenues of $2.9B (+6% YoY) driven by 2,959 deliveries at $974K ASP; adjusted gross margin of 27.5% and SG&A of 8.8% beat guidance (“positioning us for another year of healthy profitability and solid returns”) .
  • Management emphasized resilient luxury demand and affluent buyer profile; average contract ASP rose 4.5% YoY to ~$1.01M (“strategically balancing price and pace… to maximize profitability”) .
  • Liquidity and balance sheet strong: $852M cash, $2.19B revolver availability; net debt-to-capital 19.3% and debt-to-capital 26.7% .

Quotes:

  • “Our balanced operating model… and strategy of prioritizing price and margin over pace continues to pay dividends.”
  • “We achieved an adjusted gross margin of 27.5%, or 25 basis points above guidance, and our SG&A margin of 8.8% was 40 basis points better than guidance.”

What Went Wrong

  • Orders softened: net signed contracts down 4% in units (2,388) with dollars flat at $2.41B; cancellations ticked up (3.2% of beginning backlog vs. 2.4% LY) .
  • Margins compressed YoY (home sales gross margin 25.6% vs. 27.4%; adjusted 27.5% vs. 28.8%) amid higher inventory impairments ($23.3M vs. $5.5M LY) and increased incentives (~8% vs. ~7% in Q2) .
  • Backlog units fell 19% YoY to 5,492 (value −10% to $6.38B), necessitating more sell-and-settle specs in 2H to meet delivery targets .

Financial Results

Quarterly trend (oldest → newest)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.859 $2.739 $2.945
Diluted EPS ($)$1.75 $3.50 $3.73
Home Sales Gross Margin %25.0% 26.0% 25.6%
Adjusted Home Sales Gross Margin %26.9% 27.5% 27.5%
SG&A % of Home Sales Revenues13.1% 9.5% 8.8%
Deliveries (Units)1,991 2,899 2,959
ASP Delivered ($)$924,700 $933,600 $973,600

Q3 YoY comparison (Q3 2024 → Q3 2025)

MetricQ3 2024Q3 2025
Revenue ($USD Billions)$2.728 $2.945
Diluted EPS ($)$3.60 $3.73
Home Sales Gross Margin %27.4% 25.6%
Adjusted Home Sales Gross Margin %28.8% 27.5%
SG&A % of Home Sales Revenues9.0% 8.8%
Net Signed Contracts ($USD Billions; Units)$2.41; 2,490 $2.41; 2,388
Backlog ($USD Billions; Units)$7.07; 6,769 $6.38; 5,492
Cancellations (% of beginning backlog)2.4% 3.2%

Q3 2025 vs S&P Global Consensus

MetricConsensusActualSurprise
Revenue ($USD Billions)$2.855*$2.945 +$0.090B (+3.1%)
Diluted EPS ($)$3.595*$3.73 +$0.135 (+3.8%)

Values marked with * retrieved from S&P Global.

Segment revenue/units (Q3 2025 vs Q3 2024)

RegionUnits 2024Units 2025Revenue 2024 ($MM)Revenue 2025 ($MM)ASP 2024 ($)ASP 2025 ($)
North386409$375.1 $438.7 $971,800 $1,072,600
Mid-Atlantic362435$335.7 $400.7 $927,400 $921,200
South934932$776.3 $757.9 $831,100 $813,200
Mountain774816$670.0 $730.2 $865,700 $894,900
Pacific358367$566.4 $553.1 $1,581,900 $1,507,000

KPIs (Q3 2025)

KPIQ3 2025
Net Signed Contracts ($, Units)$2.41B; 2,388
Net Signed Contracts per Community (Units)5.6
Backlog ($, Units)$6.38B; 5,492
Avg Price per Home in Backlog ($)$1,161,000
Quarterly Cancellations (% of beginning backlog)3.2%
Quarterly Cancellations (% of signed contracts)7.5%
Adjusted Home Sales Gross Margin (%)27.5%
Interest in Home Sales Cost (% of Home Sales Revenues)1.1%
Period-End Community Count420

Guidance Changes

MetricPeriodPrevious Guidance (Q2 release)Current Guidance (Q3 release)Change
Deliveries (Units)Q4—3,350 New specific Q4 guide
Deliveries (Units)FY2511,200–11,600 11,200 Lowered (to low end)
Avg Delivered Price ($)Q4$965K–$985K $970K–$980K Narrowed/increased midpoint
Avg Delivered Price ($)FY25$945K–$965K $950K–$960K Narrowed/raised floor
Adjusted Home Sales GM (%)Q427.25 27.00 Lowered for Q4
Adjusted Home Sales GM (%)FY2527.25 27.25 Maintained
SG&A (% of Home Sales Rev)Q49.2 8.3 Lowered
SG&A (% of Home Sales Rev)FY259.4–9.5 9.4–9.5 Maintained
Other income etc. ($MM)Q4— (breakeven) $65 New explicit Q4
Other income etc. ($MM)FY25$110 $110 Maintained
Tax Rate (%)Q426.0 25.5 Lowered
Tax Rate (%)FY2525.5 25.1 Lowered
Period-End Community CountQ4430 (Q3); 440–450 (FY) 440–450 (FY) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Spec strategy & mixReducing spec starts to match local conditions; incentives ~7%; spec ~50–55%; backlog ASP record $1.13M 3,200 specs in process; 1,800 permits ready; incentives ~8% with pressure on finished specs; build-to-order margin >30%, spec ~3 pts lower Slightly higher incentives; disciplined spec deployment; margin mix stable blended ~27–27.5
Build costs & tariffsNo significant tariff impact expected FY25 Build costs “flat to modestly down”; negotiating better pricing; no significant tariff impact YTD Modest cost relief emerging
Macro, rates & demand cadenceSofter demand from economic uncertainty; May cadence stabilized vs Feb; prioritizing price over pace Rates down; psychological for luxury buyers; August traffic up; deposits to agreements ~80% conversion Cautious optimism; demand still elastic to confidence
Community count & openings421 at Q2 end; targeting 430 in Q3; 440–450 by FY-end; similar growth in FY26 420 at Q3 end; expecting 20–30 Q4 openings; 440–450 by FY-end Growth continuing; Q4 openings front-loaded
Cycle timesNoted improvements; efficiency focus 35% of communities build ≤8 months; remaining generally 8–11 months; spec accelerates cycles Improving build cycles
Regional performanceStrength: NJ/PA/NY, DC, Charlotte, Atlanta, Las Vegas, Denver, Boise, CA; softness: Pacific NW, much of FL, parts of TX, Phoenix North strongest with increased specs; Pacific revenue down YoY, ASP high Mixed; North leading

Management Commentary

  • “In a difficult market, our balanced operating model… and strategy of prioritizing price and margin over pace continues to pay dividends.” — Douglas Yearley (CEO)
  • “We delivered 2,959 homes at an average price of $974,000, generating record third quarter home sales revenues of $2.9 billion… adjusted gross margin of 27.5%… SG&A margin of 8.8%…” — CEO statement
  • “We modestly increased incentives in the third quarter… approximately 8%, up from approximately 7% in the second quarter.” — CEO
  • “Building costs [are] flat to modestly down in the short term… beginning to come down across the board.” — CEO
  • “We now expect deliveries to be approximately 11,200 homes for the full year at the lower end of our previous range.” — CEO

Q&A Highlights

  • Backlog vs. specs: Need ~1,900 sell-and-settle specs in 2H to meet FY deliveries; ~1,000 already completed; remaining under construction with limited cost risk .
  • Margin mix: Build-to-order margins “north of 30%”; specs ~3 pts lower; blended margin held by mix and design studio accretion when specs sold earlier .
  • Incentives and demand cadence: Incentives increased primarily on finished specs; August web traffic up ~5–10% and foot traffic ~15%; deposit-to-agreement conversion ~80% .
  • Cycle-time improvement: 35% of communities at ≤8 months; spec accelerates cycles and reduces customer-driven delays .
  • SG&A leverage: Q4 SG&A guided lower (8.3%) given revenue leverage despite community opening costs; variable sales costs tailwind .

Estimates Context

  • S&P Global consensus for Q3 2025: Revenue $2.855B*, EPS $3.595*; Actuals: Revenue $2.945B, EPS $3.73 — both beats (+3.1% and +3.8%). Values marked with * retrieved from S&P Global [GetEstimates].

Key Takeaways for Investors

  • Operational beat with record Q3 revenues and EPS above consensus despite macro softness; adjusted gross margin and SG&A exceeded guidance, signaling disciplined pricing and cost control .
  • Margins have compressed YoY amid higher incentives and impairments; blended margin stability relies on mix (more luxury, early-stage spec sales with design upgrades) and modest cost relief .
  • Full-year deliveries trimmed to low end; visibility supported by completed/in-progress specs, while backlog units are lower — watch Q4 sell-and-settle execution and incentive trajectory .
  • Community count growth into Q4 (20–30 openings) sets up FY26, with management signaling similar community growth next year; monitor regional mix and North/Mid-Atlantic/South concentration .
  • Balance sheet/liquidity remain strong (net debt-to-cap 19.3%); debt profile extended; continued buybacks and dividend underpin capital returns .
  • Trading: Near-term catalysts include Q4 delivery/margin execution vs. guidance (SG&A 8.3%, adj GM 27%), incentive trends on finished specs, and demand response to rate moves; medium term hinges on community growth, backlog rebuild, and spec/build-to-order mix optimization .