Toll Brothers Q2 Earnings: Strength in Luxury Despite Softer Demand Keeps Outlook Intact

Toll Brothers (NYSE: TOL), the nation's leading builder of luxury homes, posted better-than-expected fiscal Q2 results that underscore resilience in the high-end housing segment despite broader demand headwinds. The company’s results exceeded Wall Street estimates on both revenue and earnings per share, driven by strong execution, an improving margin profile, and a steady cadence of home deliveries. Shares of TOL rose modestly in after-hours trading as investors weighed the upside surprise against a backdrop of a cooling housing market and cautious guidance. CEO Douglas Yearley emphasized that long-term demand drivers—including demographic trends and structural housing shortages—continue to support optimism, especially in Toll’s affluent customer base.

Earnings Beat Driven by Deliveries and Pricing Discipline

For the second quarter, Toll Brothers reported earnings per share of $3.50, well above the $2.83 consensus estimate. This compares with $4.55 per share in the year-ago period, although last year’s results were flattered by a one-time $1.17 per share gain from a land sale. Adjusting for that, EPS was $3.38 last year, making the current quarter’s $3.50 result an improvement on a normalized basis. Revenue for the quarter came in at $2.71 billion, beating estimates of $2.48 billion and representing a 2% year-over-year gain. Delivered homes totaled 2,899, marking a 10% increase compared to the same period last year.

Gross margin on home sales was 26.0%, up slightly from 25.8% a year ago, and Toll achieved an adjusted home sales gross margin (excluding interest and write-downs) of 27.5%. SG&A expenses rose modestly to 9.5% of home sales revenue, from 9.0% last year, but were still better than internal guidance. Pre-tax income was reported at $477.5 million versus an estimated $390 million.

Guidance Reaffirmed Despite Softer Demand

Despite signs of moderating demand, Toll reaffirmed its full-year 2025 guidance. Management expects to deliver between 11,200 and 11,600 homes, with an average delivered price of $945,000 to $965,000. For the fiscal third quarter, the company guided to 2,800–3,000 units delivered and an average home price in the range of $965,000 to $985,000. These figures imply relatively flat sequential delivery growth but highlight the company’s ability to maintain pricing power, which is critical for protecting margins amid cost pressures.

Backlog at the end of the quarter stood at $6.84 billion, representing 6,063 homes. While that’s a 7% decline in dollar value and a 15% drop in units compared to last year, it still provides a solid base for execution in the back half of the year. Net signed contracts fell 11% in value and 13% in units year-over-year, reflecting the “softer demand environment” noted by Yearley. Nonetheless, the strength of Toll’s luxury product offering and geographic diversification has helped it weather the cycle better than many of its peers.

Tariffs and Margins: Still a Watch Point

While Toll Brothers did not specifically cite new tariff impacts in the quarter, the absence of deterioration in gross margin suggests any inflationary pressures from tariffs—particularly those tied to Canadian lumber, imported fixtures, or steel—remain manageable for now. The company’s adjusted gross margin of 27.5% held steady sequentially and remained above pre-pandemic averages, signaling operational efficiencies and a favorable pricing mix are offsetting input cost volatility.

Source: Toll Brothers

Toll’s focus on its luxury segment continues to support margin performance, as its high-end buyers are generally less sensitive to short-term interest rate fluctuations or commodity cost shifts. Additionally, the build-to-order strategy and select use of spec inventory allow greater pricing control and customization flexibility, especially valuable in an inflation-sensitive environment.

Key Macro Insights from the Housing Market

From a macro perspective, Toll Brothers’ report offers a window into the higher end of the U.S. housing market, where demand appears more resilient despite rising mortgage rates and elevated home prices. Yearley reaffirmed his view that the housing shortage—especially in markets catering to affluent buyers—is a structural support for long-term demand. Favorable demographics, particularly among millennials entering peak home-buying years, continue to underwrite Toll’s long-term growth thesis.

However, softness in net signed contracts and backlog volume may suggest a plateauing in momentum, especially as borrowing costs stay elevated and existing home inventories gradually rise. Still, Toll’s ability to deliver on guidance, sustain strong margins, and return capital through buybacks (1.6 million shares repurchased at ~$107.84/share) demonstrates notable discipline and balance sheet strength.

Toll Brothers Holds Firm as Luxury Housing Outperformer Amid Market Headwinds

Toll Brothers delivered a solid fiscal Q2 performance that beat expectations and reinforced the company’s standing as a bellwether for the luxury housing sector. While headline demand has softened slightly, Toll’s margin preservation, product mix, and pricing strategy continue to support robust profitability. As macro uncertainties persist—from interest rates to tariff policy—the company’s disciplined execution, strong backlog, and affluent customer base position it well to navigate near-term headwinds. With guidance reaffirmed and no major cracks showing in the foundation, Toll remains a top-tier builder even in a choppy housing market.