Toll Brothers Posts Record Q3 Revenue But Guides Cautiously as Luxury Demand Holds Up

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Toll Brothers (NYSE: TOL), the nation’s leading luxury homebuilder with operations spanning the Northeast, Mid-Atlantic, Southeast, Mountain, Texas, California/Pacific and key urban infill markets like the New York City metro, delivered another profitable quarter even as affordability and macro uncertainty weighed on housing. The company’s fiscal Q3 (ended July 31) set a third-quarter revenue record and beat Street EPS, underpinned by steady demand from its more affluent buyer base and firm execution on costs. Shares slipped after-hours as a softer delivery outlook tempered the headline beat, reinforcing that while luxury is resilient, it isn’t immune to higher rates and a slower order backdrop.

Results vs. Expectations: A Clean Beat on Profitability

Toll printed GAAP EPS of $3.73, topping consensus ~$3.60, on $2.95B in revenue versus ~$2.86B expected. Home sales revenue was $2.88B, up 6% year over year, driven by 2,959 deliveries (+5% y/y) at an average delivered price of $974K (roughly in line with guidance of $965K–$985K). Pre-tax income of $499.5M exceeded expectations, and operating income reached $487.7M.

The quality of the beat was solid:

• Adjusted home sales gross margin came in at 27.5%, 25 bps above guidance (27.25%) though down 130 bps y/y (28.8% a year ago).
• Reported home sales gross margin was 25.6% (vs. 27.4% y/y), reflecting interest and other items.
• SG&A was 8.8% of home sales revenue, 40 bps better than guidance and slightly improved from 9.0% a year ago.

Management highlighted cost discipline and a deliberate balance between price and pace—leaning on mix, a higher share of luxury closings in the second half, and tight control of incentives/spec—to defend margins. Chairman and CEO Douglas Yearley underscored the “resilience of our luxury business and more affluent customer base” despite persistent affordability headwinds.

Orders, Backlog, and Mix: Resilient Dollars, Softer Units

New demand indicators were mixed. Net signed contract value was $2.41B, flat year over year, while contracted units of 2,388 fell 4%; the gap reflects a higher average contract price (~$1.0M, +4.5% y/y), aided by geographic and product mix. Cancellation rates ticked higher sequentially (the company-level read was up ~130 bps q/q to the mid-single digits), a data point worth tracking into the fall selling season.

The backlog continued to normalize as deliveries outpaced new orders:

• Backlog value: $6.38B, down 10% y/y.
• Backlog units: 5,492, down 19% y/y.
• Average price in backlog stayed elevated, reflecting Toll’s positioning at the high end.

Regionally, the North and Mountain divisions remained comparatively firm (NYC-metro continues to be a standout), while the South—Toll’s lowest-price region—saw softer unit trends and slightly lower pricing, contributing to the company’s higher blended ASP.

Outlook: Steady Margins, Lower Volumes

Guidance threaded a familiar needle: stable profitability against a cautious volume backdrop. For Q4, Toll expects:

• Deliveries of ~3,350 homes (below visible consensus),
• ASP of $970K–$980K (midpoint $975K),
• Adjusted home sales gross margin of ~27.0%, and
• SG&A of ~8.3%.

For FY25, management narrowed to the low end of prior volume guidance, now calling for ~11,200 deliveries (prior 11.2K–11.6K), with ASP $950K–$960K (midpoint unchanged), adjusted home sales gross margin ~27.25% (unchanged), SG&A 9.4%–9.5% (unchanged), and a slightly lower tax rate (~25.1%). Year-end community count is still targeted at 440–450, +8%–10% y/y, supporting the multi-year growth runway once orders re-accelerate.

Balance Sheet and Capital Allocation: Dry Powder and Buybacks

The balance sheet remains a strategic asset. Toll ended Q3 with $852M in cash and $2.19B available on its revolver. Debt-to-capital was 26.7%; net debt-to-capital improved to 19.3%. The company controls ~76,800 lots (43% owned), maintaining flexibility via options to modulate land spend if conditions soften. Capital returns continued: 1.8M shares were repurchased for $201M in the quarter, alongside a $0.25 dividend.

Margin Commentary: Past the Peak, But Still Healthy

The year-on-year margin compression (reported and adjusted) is consistent with the industry’s transition off peak pricing and mix, some normalization in incentives/spec, and the shift in regional/product mix. Notably, Toll beat its own margin guidance again, and reiterated a robust 27.25% adjusted home sales gross margin for the year—still among the best in large-cap homebuilding and a testament to brand strength, land/light-spec discipline, and product positioning. While analysts continue to flag potential near-term GM pressure sector-wide from promotions and possible materials cost shifts, Toll’s mix skew and affluent buyer exposure provide a partial cushion.

Housing Landscape and Read-Throughs

Macro signals remain mixed but improving at the margin. Affordability is still the primary constraint, yet housing starts and permits have shown pockets of stabilization, and mortgage-rate expectations have eased modestly from last year’s highs. For luxury—where buyers are less rate-sensitive, often equity-funded, and value design/location—Toll’s results reinforce a “resilient but not accelerating” narrative: dollars are holding up better than units, price/mix supports margins, and execution can offset some volume drag.

Read-throughs for peers:

• Affluent exposure matters. Builders with higher-end footprints (and balanced build-to-order/spec portfolios) should continue to out-earn the group on margins.
• Volumes remain the swing factor. Backlog drawdown and slower order growth suggest 2026 unit trajectories hinge on fall/winter demand and rate path.
• Discipline wins. Tight community-level spec management, selective land spend, and operating cost control are differentiators as the cycle normalizes.

What to Watch from Here

• Orders and cancellations through the fall: do improved traffic/mortgage sentiment translate into net order growth, especially in the South?
• Community count execution vs. land spend moderation: can Toll grow shelf space without sacrificing returns?
• Margin durability vs. promotions: does the company continue to out-execute its guidance on adjusted GM?
• Mix and ASP: any shift back toward lower-priced regions/products that could pressure the blended margin.
• Policy and input costs: potential lumber/tariff dynamics into late 2025; so far, impacts have been manageable relative to land and labor.

Bottom line: Toll Brothers turned in a better-than-expected quarter on profitability, reaffirmed elite-level margins, and kept growth investments on track, but dialed back volume to the low end of the range as orders lag deliveries. For investors, the print supports the core luxury-resilience thesis while reminding that the next leg of upside likely requires a clearer turn in orders—not just flawless execution on costs and mix.