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BESTCOMPANIES2015TOLL BROTHERS

Luxury home builder Toll Brothers has built a high-quality home for its workforce. The company hosts free dinners on Monday and holds occasional fireside chats with CEO Douglas Yearley. Employees are allowed to rent—and vacation at —properties the company owns across the country for discounted prices. Plus, the company bagged the no. 628 spot on this year’s Fortune 1000 list. “You are given ample responsibilities and your success is pretty much in your hands,” says one worker. <a style="color:#ff0000;" href="http://us.greatrated.com/toll-brothers" target="_blank">Read the Great Place to Work review.</a>

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Toll Brothers was founded in 1967 by brothers Robert and Bruce Toll in Pennsylvania as a builder of luxury homes. The company went public in 1986 and expanded nationwide, eventually moving into urban high-rises, active adult communities, and resort properties. Over the decades, Toll Brothers has grown into a leading U.S. builder of luxury homes, operating in 24 states and the District of Columbia. Today it designs, builds, and sells high-end homes, condominiums, and rental communities, and offers related services such as mortgage, insurance, and smart-home technology.

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Toll Brothers (TOL): Company Profile, Stock Price, News, Rankings

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Toll Brothers

toll brothers

Good morning. Welcome and thank you all for joining us. With me today are Marty Connor, Chief Financial Officer Rob Perahouse, President and Chief Operating Officer Wendy Marlett, Chief Marketing Officer and Greg Ziegler, Senior VP, Treasurer and Head of Investor Relations. As usual, I caution you that many statements on this call are forward looking based on assumptions about the economy, world events, housing and financial markets, interest rates, the availability of labor and materials, inflation and many other factors beyond our control that could significantly affect future results.

Please read our statement on forward looking information in our earnings release of last night and on our website to better understand the risks associated with our forward looking statements. Before we jump into our quarterly results and our outlook for the remainder of fiscal twenty twenty five, I'd like to take a moment to thank Marty for the enormous contributions he has made to our company since he joined us in 02/2008. As we announced in July, Marty plans to retire from the CFO role at the end of our fiscal year in October. During his seventeen years with Toll Brothers, Marty has been an outstanding leader, business partner, financial steward and good friend. He has played a central role in enhancing value for our stakeholders and helped shape the financial strategies that have been such a vital part of our success.

Marty, your intelligence, wit and the spirit of fun you bring to the office every day will be missed by all of us. On behalf of the entire Toll Brothers team, thank you. Of course, one of our responsibilities we take very seriously here is developing talent. We have a very deep bench in our finance group, which includes Greg Ziegler, a familiar name to many of you on this call. I am pleased that Greg will be stepping up in November to become our next CFO.

He has a wealth of experience, including twenty three years at Toll Brothers and an unmatched understanding of our business. I look forward to working with him in his new role and I'm confident that he is the right leader to continue our track record of financial success. With that, let's turn to our third quarter results. I'm very pleased with our performance in the quarter. In a difficult market, our balanced operating model, broadly diversified luxury business and strategy of prioritizing price and margin over pace continues to pay dividends.

In the quarter, we delivered 2,959 homes at an average price of $974,000 generating record third quarter home sale revenues of $2,900,000,000 Our adjusted gross margin of 27.5% exceeded guidance by 25 basis points and our SG and A expense was 8.8% of home sales revenues or 40 basis points better than guidance. The outperformance on both our top line and in our margins contributed to third quarter earnings of $370,000,000 or $3.73 per diluted share. We also returned approximately $226,000,000 to stockholders through dividends and share repurchases in the quarter, positioning us to deliver another year of healthy profitability and solid returns in fiscal twenty twenty five. In the quarter, we signed 2,388 net contracts for $2,400,000,000 While units were down approximately 4% year over year, dollars were flat due to an increase in average sales price to just over $1,000,000 Our ASP was up 4.5% versus the 2024 and up 3% versus last quarter. We are pleased with the resilience of our luxury business and more affluent customer base.

While our contract ASP was up and our margin outperformed, our sales volumes have been impacted by the softer market. As a result and given our strategy of balancing price and pace, we now expect deliveries to be approximately 11,200 homes for the full year at the lower end of our previous range. We are maintaining all other key guidance metrics, including a full year adjusted gross margin of 27.25%. In this environment, we continue to actively manage our spec starts and inventory levels on a community by community basis to match local market conditions. In some markets, especially in the North Region, where inventory remains low and demand is strongest, we have increased spec production.

Overall, as local markets evolve in the coming months, we will be making decisions as to how many spec homes to start as we plan ahead for fiscal twenty twenty six. In addition to the 3,200 specs that are in various stages of construction, we have another 1,800 building permits ready to go. As we see market improvement, we have the ability to quickly ramp up our spec production. Remember, our spec business model is differentiated. We sell our spec homes at various stages of construction, all the way from foundation poured to finished home.

This offers some of our spec buyers the opportunity to personalize their homes with features and finishes that match their tastes as choice remains a key pillar the Toll Brothers buying experience, while also providing us a faster and more efficient construction schedule. From a pricing perspective, we modestly increased incentives in the third quarter. The average incentive in new contracts was approximately 8%, up from approximately 7% in the second quarter. At third quarter end, our backlog stood at 5,492 homes valued at $6,376,000,000 with an average sales price in that backlog of $1,160,000 We are pleased with both the average sales price and the gross margin embedded in our backlog. We also have 3,200 spec homes at various stages of completion.

Our cancellation rate was 3.2% of beginning backlog as compared to 2.4% in last year's third quarter and 2.8 in the second quarter. Our cancellation rate remains the lowest in the industry, continuing to reflect the financial strength of our buyers and demonstrating that they remain comfortable and confident in completing their home purchases. About 26% of our buyers paid all cash in the third quarter, consistent with recent trends and well above our long term average of 22%. The loan to value ratio for financed buyers was approximately 70%, highlighting the strong financial profiles of our customers. We continue to make progress improving construction cycle time.

Overall, we have not seen any significant impact on build costs from tariffs and we do not expect to see any this fiscal year. In fact, we are anticipating that build costs will come down modestly in the foreseeable future. We ended the third quarter with four twenty active selling communities. We remain on track to end the fiscal year with four forty to four fifty communities, representing 8% to 10% year over year community count growth. Our land position remains strong and we continue to prioritize capital efficient deal structures that support long term growth.

In the quarter, we spent $433,000,000 on new land. We remain disciplined in our underwriting and focused on securing high quality land at attractive returns with a continued emphasis on keeping land off balance sheet as long as practical to enhance capital efficiency. At quarter end, we owned or controlled 76,800 lots, 57% of which were controlled and 43% owned. This land position allows us to continue to be selective, disciplined and focused on efficiency when we assess new land opportunities. With that, I'll turn it over to Marty.

I appreciate the kind remarks at the outset and want to express my sincere gratitude for the opportunity afforded to me to be Toll's CFO for the past fifteen years. It has been a real honor and I'm proud of all that Toll Brothers has achieved over the past decade and a half. I would also like to express appreciation for the great teams I have here at Toll as well as at home. I'm proud and pleased that Greg will be picking up the reins when I step down. Greg and I have worked closely since my first day and I have the utmost confidence that Greg is the right person for the job.

Turning back to the numbers, it was a great third quarter. We significantly exceeded our guidance with earnings of $500,000,000 before taxes and $370,000,000 after or $3.73 per diluted share. As Doug mentioned, we delivered 2,959 homes, generating record third quarter home sales revenues of $2,900,000,000 This was a 5% increase in units and a 6% increase in dollars compared to last year's third quarter. The average delivered price of $974,000 was in line with the midpoint of our guidance of $975,000 and included approximately $207,000 spent on lot premiums, structural options and design studio upgrades, which are highly accretive to our margins. We signed 2,388 net contracts for $2,400,000,000 in the quarter, a 4% decline in units, but flat in dollars compared to Q3 twenty twenty four.

The average price of contracts signed in the quarter was $1,010,000 The average price in our backlog is even higher at $1,160,000 which includes $234,000 of lot premiums, structural options and design studio upgrades. Our buyers continue to demonstrate their financial strength and the value they place on their homes with the significant investments they make. Our third quarter adjusted gross margin was 27.5% or 25 basis points better than we had projected and guided. The outperformance was spread evenly across products and regions and it was attributable to both greater efficiency in our homebuilding operations and favorable mix. SG and A as a percentage of revenue was 8.8% in the third quarter compared to 9% in the 2024 and compared to our guidance of 9.2%.

SG and A came in better than expected, primarily due to increased leverage from higher than forecast revenues as well as cost controls. We remain very focused on efficiency and we continue to see the benefits flow through our results. Third quarter joint venture, land sales and other income was 15,000,000 ahead of our breakeven guidance as we realized gains in income related to several joint ventures in the quarter and saw better than forecast earnings in our mortgage operations. Our tax rate in the quarter was 26%. I'll turn it over to Greg to review our balance sheet, financial position and liquidity.

Thanks, Marty. I'm honored to be the next CFO of Toll Brothers and appreciate the confidence you and Doug have shown to me. As we announced earlier this month, in the third quarter, we issued $500,000,000 of ten year senior notes at a 5.6% coupon. At the same time, we called $350,000,000 of senior notes that were scheduled to mature this November. With the issuance and redemption, we extended the weighted average years to maturity of our senior notes from two point five four point eight years.

This comes on top of the refinancing of our credit facilities in our second quarter, which pushed out a revolver and term loan by five years and increased the size of the revolver by nearly $400,000,000 We now have no significant bank or senior debt maturities until March 2027. We finished the third quarter with a net debt to capital ratio of 19.3%, dollars $852,000,000 in cash and equivalents and $2,200,000,000 available under our $2,350,000,000 revolving credit facility. This year, we expect to generate another $1,000,000,000 in cash flow from operations. In the quarter, we spent $433,000,000 to acquire 2,755 lots. We paid a dividend of $24,200,000 and repurchased 201,400,000 of common stock at an average price of $112.4 For the full year, we've repurchased approximately $4.00 $2,000,000 of common stock at an average price of $111.08 We continue to project $600,000,000 of share repurchases for the full year.

To summarize, our balance sheet, financial position and liquidity are as strong as they've ever been. They provide us ample flexibility to both invest in the future growth of our business, while also returning capital to stockholders. This has been a pillar of our overall financial strategy for at least the past decade and will continue well into the future. Marty, I'll turn it back to you to address guidance.

Thanks, Greg. As usual, our outlook is subject to all the caveats regarding forward looking information and the assumptions, risks and uncertainties inherent to projections. Based on our backlog, recent sales activity and the number of spec homes completed or currently under construction, we expect to deliver approximately 3,350 homes in our fourth quarter, which comes to approximately 11,200 homes for the full year. The average price of deliveries in the fourth quarter is expected to be between $970,000 and $980,000 We continue to expect a full year average delivered price between $950,000 and $960,000 As Doug mentioned, we continue to balance price and margin with pace. This strategy combined with the gross margin embedded in our backlog gives us confidence in maintaining our full year projected adjusted gross margin of 27.25 percent.

For the quarter, we expect adjusted gross margin to be 27%. We expect interest and cost of sales to be approximately 1.1% of home sales revenues in the fourth quarter and for the full year. Fourth quarter SG and A as a percentage of home sales revenues is expected to be approximately 8.3%. For the full year, we continue to expect it to be between 9.49.5%. Other income, income from unconsolidated entities and land sales gross profit for the full year is projected to be $110,000,000 For the fourth quarter, we expect it to be approximately $65,000,000 We project the fourth quarter tax rate to be approximately 25.5% and the full year rate to be approximately 25.1%.

Our community count at quarter end was four twenty compared to our guide of four thirty as we moved some openings into the fourth quarter. We continue to expect four forty to four fifty communities opened by the end of the fiscal year. Our weighted average share count is expected to be approximately 98,000,000 for the fourth quarter and 100,000,000 shares for the full year. Putting this all together, we expect to earn approximately $13.75 per diluted share in fiscal twenty twenty five, achieve a full year return on beginning equity of approximately 18% and bring our book value to approximately $88 per share at year end, which would cap off another great year for Toll Brothers. Now let me turn it back to Doug.

Thank you, Marty. Our results in the third quarter and our projections for the full year reinforce the strength and resiliency of our business model. They prove out our ability to successfully navigate changing market conditions while still delivering attractive returns to stockholders. This is the result of the hard work of all of our Toll employees.

It is their passion for our business, dedication to our luxury brand and commitment to our customers that will ensure our continued success. With that, let's open it up for questions. Drew?

We will now begin the question and answer session. As a reminder, the company is planning to end the call at 09:30 when the market opens. During the Q and A, please limit yourself to one question and one follow-up. The first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Yes. Thanks very much, guys. Appreciate all the color. Congrats to Greg and Marty. I guess, let me just start off with a simple one.

Your cash flow from operations, I think you guided to greater than $1,000,000,000 What was it year to date? Because I didn't see that in the release. And then if I could also ask you, you mentioned construction costs, you expect a decline in near term. I was wondering if you could kind of give us a breakdown and what components you're expecting to get some betterment. Thanks.

I was trying to find our nine months to date. It's little rough. It's probably somewhere in that $400 plus million. So, we do expect to see a lot of that pickup happening in Q4 to get to that $1,000,000,000 for the year.

Which is typical. Which is typical. Because in Q1, it's usually relatively negative, Q2 starts to even out, Q3 positive.

Building costs, flat to modestly down in the short term. Steve, we're just beginning to see trades negotiate a bit more than they were suppliers. We're out in the market for some major material supply renewals, and we're making some progress there on good pricing. It's community and market specific, But and it's moderate, but building costs are beginning to come down across the board. I can't point to one or two things.

It's a combination of both subcontractor contracts for our major trades and materials.

The next question comes from John Lovallo and UBS. Please go ahead.

Good morning, guys. Thanks for taking my questions. The first one is, the only concern we're hearing out there really today is that the ability for you guys to grow next year. And then maybe I'll frame the question this way. I mean, the past, you've talked about achieving a sales pace of two communities sorry, two homes per community per month on average through the year.

I just want to confirm that there's no change to the thinking there. And do you think that this is something that can be achieved in fiscal year twenty twenty six after what appears to be closer to maybe 1.8 in 2025?

So John, as you know, we're going to give all sorts of great details on '26 in December. We are very focused on '26. We are very excited by the community count growth we will see next year. In fact, we are expecting 20 to 30 openings in Q4 when you do the math off of the numbers we gave you of where community count stands at the end of Q3 and where we think it will be at the end of the year. We've had some terrific openings lately.

We just opened a community this weekend in Philadelphia that took 21 deposits. We actually shut down the action that got so hot at $2,000,000 in Bucks County, Pennsylvania. We have a community in Irvine Ranch, Southern Cal that has taken 24 contracts north of $6,000,000 in the last month. We are positioning ourselves with the communities that are opening and with the business we have to set up for next year. We have 3,200 spec homes in process.

We have 1,800 spec permits that we are ready to start homes on as we see market improvement. And as I mentioned, we're already beginning to do that in the North. We have fewer shares right now and we're going to have even fewer shares next year that helps drive some EPS. Average price is up. That $1,160,000 average price in backlog, which right now is about 5,500 homes, is significant.

But even on the homes we're selling today, the average price is up to $1,000,000 Build time, cycle time has come down. We now have about 35% of our communities that can build houses in eight months or less. That gives us more visibility, more ability to sell homes into the early part of the spring selling season and still have those homes delivered by the end of the fiscal year. One of the things we look at all the time is what do we think a local market will look like next summer when most people want to close on their home to get their kids into school? And when do we have to start new specs to have those homes ready next summer?

And those decisions are all dependent about how long it takes to build the specs in each given community and what the market demand looks like in that community. And we are evaluating those opportunities daily and making the appropriate decisions as we move through it. On the macro level, rates have come down nicely. We're now at 6.38 here at Toll Brothers. It looks like short term rates are going to be coming down for the balance of the year and hopefully into next year.

While there's not a direct correlation between those short term rates and the thirty year mortgage, it's certainly encouraging. There's pent up demand building out there every day. There's still such an imbalance between supply and demand. And every day, have buyers who have been on the sidelines who are waiting to come back in. And of course, the demographics are terrific.

Our traffic is up, both web traffic and foot traffic in August. We're heading into the fall, which is a better time. So I told you I wasn't going to give you any guide on '26 into December, and I don't think I've given you any guide except that we are positioned and very focused to have a good '26. We understand that we do need to drive activity through the community openings and through the spec strategy that we have employed. And we're ready to go.

It's a big focus of us and we're excited for the future year. We continue to have great leverage over SG and A. We're really proud of what we've done there. And as we continue to build spec, that leverage increases. And so there you have it.

Sorry for the long answer, but it gave me an opportunity to give you sort of my feeling about the market. I feel better today than I did a few months ago. I think the economy is starting to heal. I think the buyers are beginning to come back out. I think rates dropping a little bit.

Is more psychological for our clients than it is affordable affordability wise because we have more of a luxury client that can afford our homes. They just have to feel good about the economy. So we'll have to see what the fall brings. But we are positioned, particularly with all these specs that permit to be nimble and react quickly. And I'm feeling certainly feeling better than I was a few months ago.

Yes, that's really helpful, Doug. And that's really what I was trying to get at is the backlog maybe being down a bit from where people would have thought it might be perhaps. You guys still feel comfortable with the community count growth in 2026 and the ability to drive orders to drive growth as we move into the next couple of years?

We do very much so. And we're really excited about our land positions and we haven't guided yet. But on the last call, gave a soft guide that we have similar community count growth projected for '26. I can reaffirm that. We just have terrific land and terrific communities coming. So it's all good.

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Hi, Thanks for taking my question. Hi. Marty, heck of a run. Congrats and congrats, Greg.

Doug, just to thanks for all that. To follow-up, can you help us walk through how sales pace trended through the quarter and maybe elaborate a little more on your August comments. And the follow-up question would be similarly, if you think about the incentives ending up at 8% versus 7%. I think a lot of your peers talked about sequentially increasing incentives through each month of the summer period. So if you could talk about how that shook out for you and whether we should be thinking the exit rate on incentives was higher than that 8%. Sorry, that's two questions in there, but those are my two.

We understand. So May was the worst month. June and July were better. August has been similar to what we saw throughout the quarter. No, the incentives are not up at the July from where they were in May or they're not up today from where they were in July or June.

The increase in incentive from that 7% to 8% is primarily driven by a little bit more discounting we had to do with some finished spec. As we continue to explain, and I know you all understand, our spec strategy is a bit different where we do sell a number of our specs earlier where the client can hit the design studio, buy a bunch of upgrades, feel like it is a custom home even though we started it. And that process is very accretive to us and the margin has been closer to build to order margin when we sell those specs earlier. But we do have a number of finished specs in some markets that are under a bit of pressure. And that explains the little bit of an increase you see on the average incentive.

I am a little bit encouraged, it's early, but over the last three weeks, we have seen the incentive in finished specs moderate a bit. So no, it's in fact not what you described, which is maybe going up a bit, but it's actually stabilized or come down a little bit. And again, it's only three weeks, so we'll have to see. But we as I mentioned earlier, our web traffic in August is up, that exact number is around five percent to 10% and our foot traffic into our communities is up about 15%. It is taking people longer to deposit because they're more cautious, but our conversion ratio from deposit to agreement of sale is about the highest it's ever been around 80%.

So four out of five people that go to deposit are several weeks later pressing firmly and moving forward with a binding agreement. I mean historically that number when I was a kid in this business was running like 60%. So it takes a bit longer to get them to the table to deposit, but then they stick. And so we haven't seen an immediate impact from the rates dropping from, call it, 6.75% or 6.75% down to 6.75%. It's only been a couple of weeks.

I wouldn't have expected it to be that immediate, particularly for our client where it's not, oh my gosh, now I can afford that monthly payment, let me jump in. It's our clients don't think that way. Plus it's August. We're closing up summer houses. We're getting kids back to school.

I think people might be waiting to see if the rates come down a little bit more. We're going know a lot more through the month of September. And I am anticipating as these rates settle into the market, we're going to see more demand coming out from all this pent up demand that's been waiting on the sidelines.

And we have a follow-up from Stephen Kim with Evercore ISI. Apologies, please go ahead.

Stephen, I'm sorry. I'm sorry Drew cut you off.

enough. Great. I'll get even with Drew later. So, Chris, question, I guess, on the volumes that we saw the orders. I think last year, Doug, you had referred to the order cadence. I think you had sort of talked about how typically 4Q orders are down about 10% from third quarter. And you had said last year that, that was going to be different and all that. You kind of called that out, if I recall. Can you talk to us about what the order picture you think would look like this year as we move sequentially from 3Q to 4Q?

Is there anything that would be helpful for us as we think about your near term plans on absorptions?

I'll take a shot at this, Steve. I think our community count growth in the fourth quarter is going to be outsized compared to other quarters this year and a year ago. So that gives us encouragement. We see rates have dropped 50 basis points as we head to our fourth quarter. That's got to be a positive.

We've had some of these new openings that Doug mentioned that have really jump started right out of the gate for the fourth quarter. And as Doug mentioned, he's feeling better than he did a couple months ago. So all that builds some optimism as we head to our fourth quarter here.

And Steve, as you know, because you know the numbers so well, fourth quarter is historically about 4% down from Q3. I've already mentioned that for three weeks of August, which is a very short glimpse into what's going to happen, we're about flat to Q3, but that's deposits. That's not even agreements. That's just a couple of weeks of taking the deposit checks. So we'll have to see.

What Marty described is spot on. It gives us some optimism, but we'll just have to see how the balance of August and September and October play out. We are well positioned with the community openings we have, with the interest we have, the interest list we have in some of those openings that are coming. But we'll just have to see how it plays out. But historically, it's down four percent and first three weeks of August have been flat.

It's trending about where history would suggest it should, but we do have some reason to be optimistic that we could do better.

The next question comes from Trevor Allinson and Wolfe Research. Please go ahead.

Hi, good morning. Thank you for taking my questions. I'll echo congratulations to both Marty and Greg as well. Thanks, First question, we've heard a few builders talk about seeing some relief on development costs. A couple of questions around that. Are you guys also seeing some softening on development? How widespread is that? And then if you are, what's the timeline for when that starts to flow through your P and and how much benefit do you think you could proceed from that and what you're seeing currently?

Trevor, we have not seen much relief on land development costs. There may very well be some downward pressure if there is less activity for land developers and they become a bit more aggressive in their pricing. But I don't think we've experienced that yet.

Okay. Got you. Makes sense. And then the second question on the 4Q community count guide. It looks like a really nice jump here sequentially going from $4.20 to $4.45.

How should we think about the timing of those? Do they come on pretty ratably throughout the quarter? Or is there a good portion that's scheduled to open up near the end of the quarter? And then any regional concentration that we should considering? Thank you.

So it's spread throughout. There's no real concentration in terms of timing. And remember, that's a net number at $4.45. So there are some communities that are closing, selling out in the next two point five months. So the gross number of openings will actually be modestly more than that 25.

That gets you from four twenty to four forty five because of sellouts. Regionally, it's pretty well spread, right guys, around the country. So there's no I wouldn't call it any particular regional concentration.

North Mid Atlantic South seems to be a little bit of the concentration for Q4 opening.

I like that. Considering Boston to Washington, D. C. Is our strongest corridor. Charlotte, Charlotte has been hot lately.

So there you go. A little bit more in the North, Mid Atlantic and South.

The next question comes from Sam Reid with Wells Fargo. Please go ahead.

Awesome. Thanks, guys. And congrats to Marty and Greg. Greg, looking forward to keeping it going. Wanted to talk cycle times.

35 of your communities can build in eight months or less. It's a great, very helpful stat. Can you just talk to what cycle times look like across the remaining 65% of your communities? And then when we think about ways to improve that on the spec and build to order side, Just talk through levers that you can pull to improve cycle times into next year.

So the balance of 65% would be eight months in a day to probably eleven months. And the eleven months, we'll take the extreme, really big houses that have probably a lot of build to order with a lot of money spent in the design studio and maybe a lot of structural options that are being offered and the houses are more complicated. They may very well be in towns that have some difficult permitting and inspection processes that can slow you down a little bit. They could also be in locations where we have significant backlog because we've been hot and it just takes a little bit longer to build. So every community has its own story, but that is generally the reason why we have some that are still stuck in eleven months.

And how do we get better? We just keep doing what we're doing, which is working really hard. We have teams out there that study every home we build every day, why we lost a day here or there, what we can do to improve it, how we make our floor plans and our architecture more efficient, more optimized, how we get people through the design studios faster. We track how many days it takes somebody to get through that design studio and sign off so we can get going. So we are all over it.

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