Toll Brothers Earnings on Deck: Will Luxury Homebuilder Spark a Breakout for the Group?

WATCH: Bitcoin $200K? The math behind the next crypto supercycle.

Homebuilders are back in the spotlight. The iShares U.S. Home Construction ETF (ITB) is threatening to break out of its recent range as investors warm up to a sector that has been dogged by higher mortgage rates and affordability concerns. Fresh housing data has only fanned the flames: July housing starts rose 5.2% month-over-month and permits held steadier than expected, surprising skeptics who anticipated a slowdown. Against that backdrop, a surprise from luxury builder Toll Brothers (NYSE:TOL) after the close tonight could provide another leg higher for the group.

At the sector level, valuations remain compelling. Despite rising input costs and persistent affordability challenges, builders are trading at historically cheap multiples relative to earnings power. Analysts at Seaport Global recently leaned into the theme, upgrading Toll Brothers and Taylor Morrison (TMHC) to Buy, citing “early pain = early gain” dynamics and improving risk-reward into the second half of 2025. A positive surprise from Toll this evening could validate that bullish posture and send ripples across peers like PulteGroup (PHM), D.R. Horton (DHI), and M/I Homes (MHO).

Expectations Going Into the Print

Consensus expectations set the bar:

• EPS estimate: $3.60, flat year-over-year.

• Revenue estimate: $2.86 billion, up 4.8% year-over-year.

That mix suggests modest top-line growth with stable bottom-line results. Historically, Toll has delivered: it has beaten EPS estimates 88% of the time over the past two years, and revenue estimates every single quarter. However, sentiment into tonight’s report has cooled slightly — EPS estimates saw ten downward revisions over the last three months against just one upward, signaling investor caution.

Wedbush analysts have flagged margin pressure risks in the near term, noting that mortgage rate volatility has required more aggressive rate buydowns and that incentives remain elevated. Additional clouds include potential higher import duties on Canadian lumber starting in September and an aggressive promotional environment expected in lower-end housing markets. Against this backdrop, the affluent skew of Toll’s customer base may prove an important differentiator.

Management’s Playbook

CEO Douglas Yearley and CFO Marty Connor set a confident tone last quarter. “In what proved to be a challenging environment, we met or exceeded our guidance across all key metrics,” Yearley said after reporting record Q2 home sales revenue of $2.71 billion. Toll delivered 2,899 homes at an average price of $934,000, highlighting the strength of its luxury buyer profile.

Guidance was reaffirmed for fiscal 2025:

• Deliveries: 11,200–11,600 homes.
• Average price: $945,000–$965,000.
• Adjusted gross margin: 27.25%.
• Full-year EPS: about $14 per diluted share.

Capital return is a growing theme. Toll boosted its projected 2025 share repurchases from $500 million to $600 million, underscoring confidence in cash flow. The company ended Q2 with $686 million in cash and a net debt-to-capital ratio of just 19.8%, giving it balance sheet flexibility.

Connor added in May that Toll was “on target to reach our year-end guidance of approximately 440 to 450 communities, which would represent an 8% to 10% increase versus fiscal year-end 2024.” That community growth is a key underpinning of forward earnings power.

A Look Back: Q2 Recap

Q2 2025 offered a solid foundation heading into tonight:

• Home deliveries: 2,899 (up nearly 10% YoY).
• Revenue: $2.71 billion (+2.3% YoY).
• EPS: $3.50 per diluted share.
• Adjusted gross margin: 27.5% (above guidance, and up from 26.9% in Q1).
• SG&A margin: 9.5% (also better than expected).

Backlog stood at $6.84 billion and 6,063 homes, down 7% in dollar terms and 15% in units versus last year. Analysts zeroed in on that decline, pressing management on visibility into second-half deliveries and risks tied to unsold spec homes. Toll acknowledged 1,900 homes for delivery in the second half still need to be sold from spec inventory. Nonetheless, management maintained guidance and struck a confident tone on margin trajectory, highlighting a greater mix of high-margin luxury deliveries in H2.

Analyst Sentiment and Risks

Analyst debate has centered on three main issues:

• Margins: Incentives increased to 7% of average sales price last quarter, up from the historical 5–6%. That suggests near-term pressure, though management argued that product mix will keep full-year margins in check.
• Spec Inventory: With roughly half of deliveries now coming from spec homes, Toll has shifted from its historic build-to-order model. While this provides flexibility, it introduces risk if demand softens.
• Macro Headwinds: High mortgage rates remain a headwind despite recent easing, and economic uncertainty continues to weigh on consumer confidence.

Wedbush expects margin headwinds to persist in Q3, but notes Toll’s affluent buyer base (less rate-sensitive) should provide some insulation relative to entry-level peers.

Peers to Watch

Any upside from Toll will likely have spillover effects across the sector. D.R. Horton (DHI), the largest U.S. homebuilder, and PulteGroup (PHM) both cater to broader market segments and are sensitive to incentive trends. Taylor Morrison (TMHC), also recently upgraded to Buy at Seaport alongside Toll, is positioned similarly in the move-up and discretionary buyer category. Meanwhile, M/I Homes (MHO) and Tri Pointe Homes (TPH) round out Wedbush’s favored list of builders with less first-time buyer exposure.

With ITB perched on the edge of a breakout, the group may trade more as a block than by individual fundamentals — meaning Toll’s numbers tonight could drive the entire sector higher or lower.

Final Take

Heading into tonight’s print, homebuilders are cheap, housing data is improving, and sentiment is cautiously optimistic. Toll Brothers, with its luxury focus and strong execution track record, has the chance to ignite a sector-wide rally if it surprises to the upside on margins or demand trends. Conversely, any stumble could reinforce concerns about backlog, incentives, and consumer confidence.

Investors watching ITB’s chart may not need to look any further than Toll Brothers’ conference call for the next catalyst. A beat-and-raise scenario could be the spark that sends homebuilders breaking out of their base and back into leadership mode.