Toll Brothers 2025 Q2 Earnings Misses Targets Despite Strong Home Sales Revenue

Toll Brothers (TOL) reported its fiscal 2025 Q2 earnings on May 20th, 2025. The company's earnings per share (EPS) and net income fell short of expectations, with EPS declining to $3.53 from $4.60 last year, and net income decreasing by 26.8% to $352.45 million from $481.62 million in the same period. However, the company exceeded its home sales revenue guidance, achieving a record $2.71 billion, despite challenges in market demand. Toll Brothers reaffirmed its full-year outlook, maintaining confidence in its diversified luxury offerings and strategic focus on sales and margin over volume.

Revenue

Toll Brothers saw a 3.5% decline in total revenue for Q2 2025, amounting to $2.74 billion compared to $2.84 billion a year earlier. Home sales revenue reached a notable $2.71 billion, while land sales and other contributed $32.62 million to the overall revenue.

Earnings/Net Income

Toll Brothers experienced a 23.3% decrease in EPS, which fell to $3.53 in Q2 2025 from $4.60 the previous year. Net income also declined significantly by 26.8%, totaling $352.45 million compared to last year's $481.62 million. These results indicate weaker performance compared to previous periods.

Price Action

The stock price of Toll Brothers edged down 0.84% during the latest trading day and fell 4.43% over the most recent full trading week, although it showed an 11.28% increase month-to-date.

Post-Earnings Price Action Review

The strategy of buying Toll Brothers stock post-revenue beat and holding for 30 days has historically delivered strong returns, significantly outperforming the benchmark by achieving a 233.12% return compared to the benchmark's 88.25%. Despite this impressive growth, the strategy's Sharpe ratio of 0.67 suggests moderate risk-adjusted returns. The maximum drawdown of -50.81% underscores the strategy's vulnerability to volatility, highlighting the need for careful risk management. Overall, while the approach has demonstrated considerable growth, it comes with notable volatility and risk, necessitating a cautious investment strategy.

CEO Commentary

Douglas C. Yearley, Jr., Chief Executive Officer, expressed satisfaction with the second quarter results, highlighting earnings that surpassed expectations. He noted record home sales revenues of $2.71 billion, exceeding the guidance of $2.47 billion, despite a softer demand environment. Yearley emphasized the strength of Toll Brothers' diversified luxury offerings and the strategic focus on prioritizing sales price and margin over pace. He reaffirmed confidence in the company’s long-term outlook for the luxury home market, supported by disciplined underwriting and strong cash flow, positioning the company to adapt to market changes while delivering value to shareholders.

Guidance

The company expects third quarter deliveries between 2,800 to 3,000 units and full fiscal year deliveries of 11,200 to 11,600 units. The average delivered price per home is projected to range from $965,000 to $985,000 for the third quarter and $945,000 to $965,000 for the full year. Adjusted home sales gross margin is anticipated to be 27.25% for both the third quarter and full year, while SG&A is expected to be 9.2% for the third quarter and between 9.4% and 9.5% for the full fiscal year. The tax rate is guided at 26.0% for the third quarter and 25.5% for the full year.

Additional News

In recent weeks, Toll Brothers announced the opening of the Montrose at Innisbrook Community in Palm Harbor, Florida, expanding its luxury home offerings. The company also launched Toll Brothers at The Nations in Nashville, Tennessee, showcasing new model homes. Furthermore, Toll Brothers has started selling homes in the new luxury townhome community, 568 West, located in West Midtown Atlanta. These developments are part of Toll Brothers' strategic expansion in key markets, aiming to capitalize on the demand for upscale housing and maintain its leading position in the luxury home segment.