Toll Brothers’ Earnings Call: Record Revenue Amid Challenges

Toll Brothers Inc. ((TOL)) has held its Q2 earnings call. Read on for the main highlights of the call.

Toll Brothers Inc. recently held its earnings call, revealing a mixed sentiment among stakeholders. The company celebrated record revenue and robust margins, buoyed by strategic share repurchases and a strong liquidity position. However, these achievements were overshadowed by challenges such as a decline in net agreements, softer demand, and the need for increased incentives to boost sales. While Toll Brothers remains optimistic about its long-term strategy, the immediate outlook is cautious due to prevailing economic uncertainties.

Record Second Quarter Home Sales Revenue

Toll Brothers achieved a significant milestone with record second quarter home sales revenue of $2.71 billion. This impressive figure was driven by the delivery of 2,899 homes at an average price of approximately $934,000, surpassing the midpoint of their guidance by $236 million.

Strong Adjusted Gross Margin

The company reported an adjusted gross margin of 27.5%, exceeding their guidance by 25 basis points. This performance underscores Toll Brothers’ ability to maintain profitability despite market challenges.

Low Contract Cancellation Rate

Toll Brothers’ contract cancellation rate stood at a low 2.8%, reflecting the financial strength and commitment of its customer base, which is a positive indicator for future stability.

Increased Share Repurchases

Capitalizing on its strong financial position, Toll Brothers announced an increase in projected share repurchases for fiscal 2025 from $500 million to $600 million, signaling confidence in its financial health and future prospects.

Strong Liquidity Position

The company ended the quarter with $686 million in cash and maintained a net debt-to-capital ratio of 19.8%, highlighting its solid liquidity position and financial resilience.

Decline in Net Agreements

Despite strong financial metrics, Toll Brothers experienced a 13% decline in net agreements in units and an 11% decrease in dollars compared to the previous year’s second quarter, signaling challenges in maintaining sales momentum.

Softer Demand Environment

The company faced a softer demand environment in the second quarter, attributed to declining consumer confidence amid economic uncertainties, which impacted overall sales performance.

Increased Incentives

To counteract the softer demand, Toll Brothers increased sales incentives to approximately 7% of the average sales price, up from the recent average of 5% to 6%, to stimulate buyer interest.

Community Count Growth Challenges

While community count growth is anticipated to drive future results, Toll Brothers reaffirmed its year-end guidance of 440 to 450 communities, indicating a slower growth trajectory than desired.

Forward-Looking Guidance

CEO Douglas Yearley reaffirmed the fiscal 2025 guidance, projecting home sales revenue of $10.9 billion at the midpoint, with an adjusted gross margin of 27.25% and earnings of approximately $14 per diluted share. The company expects to reach a community count of 440 to 450 by fiscal year-end, representing an 8% to 10% increase from fiscal year-end 2024. Additionally, Toll Brothers plans to increase share repurchases to $600 million, reflecting confidence in its strategic direction.

In conclusion, Toll Brothers Inc.’s earnings call painted a picture of strong financial performance tempered by market challenges. The company’s record revenue and robust margins are commendable, yet the decline in net agreements and softer demand highlight the hurdles ahead. With cautious optimism, Toll Brothers remains committed to its long-term strategy while navigating the current economic landscape.