Toll Brothers Misses Q4 Estimates as Higher Rates and Tariff Concerns Weigh on Sentiment

Toll Brothers (TOL) reported mixed fourth-quarter earnings results, missing analyst estimates on both earnings per share (EPS) and revenue. The company posted EPS of $1.75, falling short of the $2.04 consensus estimate, while revenue came in at $1.86 billion, missing expectations of $1.91 billion and representing a 4.6% decline year-over-year. The company's adjusted home sales gross margin stood at 26.9%, down from 28.9% a year ago. Additionally, net signed contracts increased 13% year-over-year to 2,307 units but missed the analyst estimate of 2,441 units. The report, combined with ongoing macroeconomic pressures, sent the stock below key support at $120, marking its lowest level since July.

Key homebuilder metrics were mixed for the quarter. Toll Brothers delivered 1,991 homes, a 3.3% increase year-over-year but slightly below estimates of 2,037 units. The backlog stood at 6,312 homes, valued at $6.94 billion, down 2% from the previous year. The company's end community count reached 406, slightly below expectations of 411.72, and the average delivered price per home was approximately $924,600, missing the consensus of $936,510. SG&A expenses as a percentage of home sales revenue rose to 13.1%, up from 11.9% last year, exceeding analyst estimates of 12.5%. The higher costs reflect the challenging macroeconomic environment, where rising interest rates and increasing land costs have pressured margins across the industry.

The broader sentiment around homebuilders has been weak due to the combination of higher interest rates and increasing tariff concerns. Mortgage rates remain elevated, reducing affordability and slowing demand in certain segments of the housing market. While Toll Brothers' management noted solid demand in its first quarter, the company acknowledged that affordability constraints and growing inventories in some markets have weighed on sales, particularly at the lower end of the market. Furthermore, the National Association of Home Builders reported that builder confidence fell to its lowest level in five months, citing cost pressures and policy uncertainty as key concerns. Tariffs remain a looming risk, with potential increases on key homebuilding materials such as lumber and appliances further complicating the cost structure for builders.

Looking ahead, Toll Brothers provided a cautious but stable outlook for the second quarter and full fiscal year. The company expects Q2 deliveries between 2,500 and 2,700 units, below the consensus estimate of 2,781, with an average delivered price per home between $940,000 and $960,000. The adjusted home sales gross margin is projected at 27.25%, slightly above expectations of 27.0%. For the full year, Toll Brothers reaffirmed its guidance for deliveries of 11,200 to 11,600 units with an average home price of $945,000 to $965,000, maintaining an adjusted home sales gross margin of 27.25%. Despite the near-term headwinds, management remains optimistic about long-term industry fundamentals, citing favorable demographics, a persistent housing supply shortage, and continued demand for luxury homes. However, the stock's recent price action suggests investors remain cautious, as macroeconomic pressures continue to weigh on the sector.

The news sent shares to multi-month lows as the downward trend in homebuilders continues. The TOL miss is notable as this represents the high end space which had previously been impervious to higher rates and rising prices. The July low of $108 sets up as a key level of support for the stock.