Toll Brothers, Inc. (TOL) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with low cancellation rates and positive market trends such as increased traffic and sales. Despite a slight decline in gross margins, improvements are expected in Q3 and Q4. The company is optimistic about the spring selling season and has a solid strategy for community growth and shareholder returns. The Q&A session highlighted concerns about technology adoption but overall sentiment remains positive. The strategic plan for 2026 and favorable demographics further support a positive outlook. Therefore, the stock price is likely to see a positive movement over the next two weeks.
Key Financial Performance
Homes Delivered 1,899 homes delivered in the quarter, generating $1.85 billion in homebuilding revenue, which is approximately $24 million above the midpoint of guidance.
Earnings Per Share (EPS) $2.19 per diluted share, a 25% increase compared to $1.75 in last year's first quarter. This was $0.05 above implied guidance.
Net Contracts Signed 2,303 net contracts signed for $2.4 billion, flat in units but up 3% in dollars compared to last year's first quarter. The average sales price increased to $1,033,000.
Adjusted Gross Margin 26.5%, which is 25 basis points better than the guidance of 26.25%. This improvement was due to operating efficiency.
SG&A Margin 13.9% in the first quarter, compared to guidance of 14.2%. The 30 basis point improvement was due to leverage from higher-than-anticipated homebuilding revenues.
Joint Venture, Land Sales, and Other Income $72 million in the first quarter compared to $2.5 million in the first quarter of fiscal 2025. This includes a net gain from the sale of about half of the Apartment Living portfolio.
Net Debt-to-Capital Ratio 14.2% at the end of the first quarter, compared to 21.1% one year ago.
Average Delivered Price $977,000, which was below guidance due to a mix of more lower-priced finished spec homes delivered in the quarter than projected.
Design Studio Upgrades and Lot Premiums Averaged $212,000 or 25% of the average base sales price in the first quarter.
Contract Cancellation Rate 2.8% of beginning backlog, which is an industry low.
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Operating Highlights
New product mix: Maintained a healthy mix of build-to-order and spec homes, balancing higher-margin build-to-order with faster-turning spec homes. Design studio upgrades and customizations remain a competitive advantage, contributing $212,000 on average per home.
Market expansion: Increased community count from 445 to 455 in Q2, targeting an 8%-10% growth for the year. Land under control supports growth for several years. Strong performance in Boston to South Carolina, Boise, Las Vegas, Reno, and California markets.
Operational efficiencies: Improved production efficiencies reduced build-to-order cycle times to 9.5 months. Build costs remained flat compared to the previous quarter. Maintained low contract cancellation rate of 2.8%.
Strategic shifts: Transitioning leadership to Karl Mistry as CEO. Exiting the multifamily development business over the next several years. Focused on serving affluent customer base with luxury move-up, move-down, and first-time buyer segments.
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Risk or Challenges
Market Conditions: Affordability pressures continue to impact entry-level buyers, though the company benefits from a more affluent customer base. Tampa, Atlanta, San Antonio, and the Pacific Northwest markets remain challenged.
Regulatory and Economic Factors: Forward-looking statements are subject to risks related to the economy, world events, housing and financial markets, interest rates, labor and material availability, and inflation, which are beyond the company's control.
Supply Chain and Operational Risks: The company faces risks in managing construction cycle times and maintaining production efficiencies. Build costs were flat in the first quarter, but any future disruptions could impact margins.
Strategic Execution Risks: The company is targeting an 8%-10% increase in community count, which requires disciplined land acquisition and development. Any missteps in execution could impact growth objectives.
Geographic Market Risks: Certain markets, such as Tampa, Atlanta, San Antonio, and the Pacific Northwest, are underperforming, which could affect overall revenue and profitability.
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Guidance & Outlook
Community Count Growth: The company expects to increase community count in the second quarter from 445 communities at the end of the first quarter to 455 at the end of the second quarter. For the full year, they are targeting an 8% to 10% increase over the 9% growth achieved last year. They also have enough land under control to continue growing community count at this pace over the next several years.
Home Deliveries and Pricing: For fiscal 2026, the company projects deliveries of between 10,300 and 10,700 homes with an average price between $970,000 and $990,000. For the second quarter, they expect deliveries of approximately 2,400 to 2,500 homes with an average delivered price between $975,000 and $985,000.
Adjusted Gross Margin: The company projects an adjusted gross margin of 25.5% for the second quarter and 26.0% for the full fiscal year 2026. They expect margins to rise in the second half of the year, especially in the fourth quarter, due to a greater contribution from higher-margin regions.
SG&A Expenses: SG&A as a percentage of home sales revenues is projected to be approximately 10.7% for the second quarter and 10.25% for the full year.
Tax Rate: The company projects a tax rate of approximately 26% for the second quarter and 25.5% for the full year.
Stock Repurchase: The company plans to repurchase $650 million of common stock for the full year, with most of the repurchases occurring later in the year, aligned with anticipated higher cash flows.
Market Outlook: The company remains positive on the long-term future of the U.S. housing market, citing strong demographic tailwinds, wealth transfer from baby boomers, and a significant undersupply of homes. They believe affordability pressures will recede over time, bringing more buyers back to the market.
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Shareholder Return Plan
Balance Sheet and Liquidity: The company has a healthy balance sheet with ample liquidity, low net debt, and a strong investment-grade credit rating. They recently extended the maturities of their revolving credit facility and most of their term loan facility to February 2031.
Cash Flow Generation: The company expects significant cash flow generation from operations this year, enabling continued investment in business growth and capital returns to stockholders.
Share Repurchase Program: The company targets repurchasing $650 million of common stock for the full year, with most of the repurchases occurring later in the year, aligned with anticipated higher cash flows.
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Key Q&A
Q:What is driving the 100 basis point sequential decline in gross margin from 26.5% in Q1 to 25.5% in Q2?
A:The decline is due to mix, with less Pacific region activity in Q2, which is a high-margin region. This is expected to reverse later in the year, particularly in Q4, with more activity in the North and Pacific regions.
Q:What are your thoughts on the Sumitomo acquisition of Tri Pointe and its potential impact on technology in homebuilding?
A:The CEO is not close enough to the acquisition to provide a definitive answer but acknowledges that the Japanese have been innovative. However, the homebuilding industry has struggled to implement technology effectively, and it remains uncertain if this acquisition will lead to significant innovation.
Q:What is your strategy if demand is insufficient to support your spec strategy?
A:The company would prioritize build-to-order over spec starts in a softening market. They aim to sell specs earlier in the construction process and focus on getting customers into the design studio to make selections.
Q:What is your long-term net debt to capital target, and how do you think about cash holdings?
A:The long-term net debt to total capital target is in the mid-teens. The company aims to hold a minimum of a few hundred million dollars in cash to meet normal operating expenses, including land purchases.
Q:How would you characterize traffic and sales in January relative to normal seasonality?
A:Traffic and sales were modestly up compared to the same period last year. The company is cautiously optimistic but notes that it is too early to draw strong conclusions.
Q:What impact has weather had on your operations year-to-date?
A:Weather impacted operations in the Mid-Atlantic corridor from North Carolina to Georgia, causing a slowdown for a week to 10 days. Other regions like Philly, New York, Boston, and Washington recovered quickly.
Q:Can you provide more nuance around the cadence of gross margin improvement in Q3 and Q4?
A:Gross margins are expected to improve sequentially in Q3 and Q4 due to mix, with more revenue from the Pacific and North regions and more move-up luxury sales. Q3 will see slight improvement over Q2, with more significant improvement in Q4.
Q:How are pricing incentives and building costs expected to impact gross margins?
A:Pricing incentives are expected to remain at current levels, and building costs are projected to stay flat. There is some downward pressure on costs, but lumber is a slight headwind.
Q:What is your outlook on the land market and your investment strategy?
A:The company sees low- to mid-single-digit inflation in land prices and is leveraging its scale to structure efficient land deals. There is less competition in the luxury home market, which benefits the company.
Q:What metrics are up modestly year-over-year, and how does your incentive strategy differ from the market?
A:Web traffic, foot traffic, and deposits are all up modestly year-over-year. The company has maintained consistent incentives at around 8% for the last three quarters, focusing on balancing spec and build-to-order sales.
Q:What percentage of communities saw price increases in Q1, and which regions are performing well?
A:30% to 40% of communities saw price increases in Q1. The North region, from Boston to South Carolina, is performing well, along with specific communities in Southern California and Florida.
Q:What is your strategy for expanding manufacturing operations beyond the East Coast?
A:The company does not plan to expand manufacturing operations beyond the East Coast due to high transportation costs. The current footprint serves 20% to 30% of the company's revenue.
Q:How is the land pipeline in the North region, and what is your strategy for community growth?
A:The land pipeline in the North region is strong, with opportunities for infill development and repositioning of old office buildings. The company plans to grow community count by 7% to 10% annually.
Q:What trends are you seeing in design studio upgrades, and how do they impact margins?
A:Design studio upgrades as a percentage of home value have been consistent over time. The company continues to professionalize the studios, which has improved margins.
Q:How are you balancing cost reductions with the ability to ramp up operations as conditions improve?
A:The company is maintaining efficiency while keeping back-office staff intact. They can scale up field personnel and sales teams if absorption rates increase.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about the Sumitomo acquisition's potential impact on technology in homebuilding, stating they were not close enough to the situation to provide insights. The response lacked clarity and detail.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Antonio Pacific
Atlanta San
Boise Las
Brothers design
Brothers year
CEO history
CEO sir
California Florida
Carolina corridor
Chairman role
Executive Chairman
Florida footing
Geographically Boston
Pacific region
SGA margin
affordability pressure
buyer segment
community end
customer base
development
home buyer
home homebuilding
homebuilding revenue
increase
loan
luxury margin
luxury move
margin home
margin order
mid
move luxury
offs
percentage basis
portfolio
price home
production
profile
selling season
spring selling
stage construction
start spring
studio upgrade
venture land
TOL Transcript
Toll Brothers, Inc. (TOL) Q1 2026 Earnings Call Transcript
Positive2-18
The earnings call reveals strong financial performance with low cancellation rates and positive market trends such as increased traffic and sales. Despite a slight decline in gross margins, improvements are expected in Q3 and Q4. The company is optimistic about the spring selling season and has a solid strategy for community growth and shareholder returns. The Q&A session highlighted concerns about technology adoption but overall sentiment remains positive. The strategic plan for 2026 and favorable demographics further support a positive outlook. Therefore, the stock price is likely to see a positive movement over the next two weeks.
Toll Brothers, Inc. (TOL) Q4 2025 Earnings Call Transcript
Unknown12-9
The earnings call presented a mix of positive and negative elements. While there was a strong backlog and liquidity, the decline in gross margins and higher incentives pose risks. The Q&A revealed cautious guidance and uncertainties in first-quarter orders, but also highlighted strategic exits and focus on core homebuilding. The sentiment is neutral due to balanced positives like strong shareholder returns and negatives like declining margins.
Toll Brothers, Inc. (TOL) Q3 2025 Earnings Call Transcript
Positive8-20
The earnings call reveals strong financial performance with record home sale revenues and an improved gross margin. The company is on track with its community count growth and has increased its share repurchase plan, indicating confidence in its financial health. However, there are concerns about the softer market impacting sales volumes and cancellation rates. Despite these risks, the overall sentiment remains positive due to the strong earnings, optimistic guidance, and shareholder return plans, suggesting a likely stock price increase of 2% to 8%.
Toll Brothers, Inc. (NYSE:TOL) Q2 2025 Earnings Call Transcript
Positive5-22
The earnings call summary reveals strong financial performance with record EPS, increased dividends, and share repurchases, indicating a positive shareholder return plan. Despite some concerns about decreased consumer confidence and backlog, the overall sentiment is bolstered by strong demand, cost control, and improved margins. The Q&A section highlights management's confidence in their spec business and improving demand, further supporting a positive outlook. These factors suggest a positive stock price movement over the next two weeks.
TOL Report
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