Toll Brothers NYSE: TOL reported third-quarter fiscal 2026 results that exceeded its guidance for deliveries, home sales revenue, adjusted gross margin and earnings, while management said the housing market remained subdued amid elevated mortgage rates and weak consumer confidence.
The luxury homebuilder delivered 2,662 homes during the quarter and generated $2.65 billion in home sales revenue. Net income was $280.1 million, or $2.97 per diluted share, on pretax income of $374.8 million. Adjusted gross margin was 25.6%, exceeding the company’s guidance by 35 basis points.
Net signed contracts rose 5% from the prior-year quarter to 2,508 homes, representing $2.5 billion in value, up 4% in dollars. Executive Chairman Doug Yearley said the company’s luxury buyer base remained relatively resilient, though broader demand conditions continued to be difficult.
Community Growth Supports Contract Gains
Chief Executive Officer Karl Mistry said the increase in contracts was driven by the company’s continued community-count expansion. Toll Brothers was selling from 471 communities at the end of the third quarter, compared with 420 communities a year earlier. The company expects to finish fiscal 2026 with 480 to 490 selling communities, representing 8% to 10% growth from the 446 communities at the end of fiscal 2025.
Management said its existing land position supports similar community-count growth in fiscal 2027 and beyond. Mistry said communities planned for the coming year are more concentrated in the South and Mountain regions, with a higher percentage serving the luxury move-up segment.
The company’s strongest markets in the quarter included Florida; the region from Boston through the Carolinas; Boise, Idaho; Las Vegas and Reno, Nevada; and Denver. More challenging markets included Atlanta, Seattle, Portland, San Francisco and Texas.
Luxury move-up homes represented about 61% of third-quarter home sales revenue, while luxury first-time and move-down customers accounted for approximately 23% and 16%, respectively. Mistry said luxury move-up is the company’s largest revenue contributor and its highest-margin buyer segment.
Yearley said Toll Brothers’ average luxury move-up home sells for $1.35 million. He said the company sees growing land opportunities in that segment and faces less competition for certain sites than builders operating at lower price points.
Pricing Discipline and Spec Inventory Management
Management said Toll Brothers continued to prioritize pricing and margins over sales pace. Incentives on net signed contracts averaged about 7.5% of gross sales price, modestly below the approximately 8% level of the past year. The company raised prices in roughly 30% of its communities during the quarter, according to Mistry.
About 25% of buyers paid cash during the quarter. For buyers who financed their purchases, the average loan-to-value ratio was approximately 69%.
Toll Brothers also continued reducing finished speculative-home inventory. Finished specs averaged 1.9 homes per community at quarter-end, down from 2.0 at the end of the second quarter and 2.8 at the beginning of fiscal 2026. Management said it aims to sell speculative homes early in the construction process, when incentives tend to be lower and customers can still select upgrades through the company’s Design Studios.
Upgrades, structural options and lot premiums averaged $207,000 in the quarter, equal to 24% of the average base sales price. Build-to-order cycle time remained about nine months, while speculative homes generally require about one month less to complete.
Building costs were relatively flat during the quarter, according to management, as higher lumber costs were offset by modest reductions in other costs. President and Chief Operating Officer Seth Ring said the company had so far avoided longer-term cost increases outside of lumber. Mistry also described horizontal development costs as flat.
Outlook Reaffirmed as Average Prices Rise
Toll Brothers reaffirmed its full-year fiscal 2026 adjusted gross-margin outlook of 26.1% and its approximate $10.5 billion home sales revenue outlook. The company narrowed its expected full-year delivery range to 10,500 to 10,600 homes and increased its projected average delivered price to between $995,000 and $1 million.
Management said the higher average-price forecast is expected to add about $53 million to full-year home sales revenue compared with its previous guidance. For the fourth quarter, Toll Brothers expects to deliver 3,450 to 3,550 homes at an average delivered price of $995,000 to $1.005 million, with adjusted gross margin of about 26.0%.
Chief Financial Officer Gregg Ziegler said anticipated fourth-quarter margin benefits include favorable geographic mix from the North and Pacific regions, a greater contribution from luxury move-up deliveries, and the expected delivery of speculative homes sold earlier in the construction cycle.
The company ended the quarter with approximately $3.3 billion of liquidity, including $1.1 billion of cash and $2.2 billion available under its revolving credit facility. Its net debt-to-capital ratio was 15.6%, down from 19.3% a year earlier.
Toll Brothers spent approximately $452 million on land acquisitions during the quarter and owned or controlled about 75,500 lots, 58% of which were optioned. Management said it continues to pursue land investments under rigorous underwriting standards, with approximately 70% of year-to-date land spending directed toward its core luxury segment.
Capital Returns and Buffington Acquisition
The company returned approximately $231 million to shareholders during the quarter through dividends and share repurchases. It increased its projected fiscal 2026 repurchases to $700 million from $650 million, and had completed $433 million in buybacks through the third quarter.
Toll Brothers also discussed its May acquisition of Buffington Homes, which expanded its presence into Northwest Arkansas. Mistry said Buffington operated about a half-dozen open communities and contributed roughly 30 sales and about 25 settlements during the third quarter. Ziegler said purchase accounting related to the acquisition will reduce gross margin and has been included in the company’s guidance.
Management said it remains focused on smaller bolt-on acquisitions that complement its luxury brand, rather than pursuing a different approach to mergers and acquisitions.
About Toll Brothers (NYSE:TOL)
Toll Brothers, Inc is a publicly traded homebuilding company that focuses on designing and constructing luxury residential properties. The company's core business encompasses a broad range of housing products, including custom single-family homes, upscale condominium communities and rental apartment ventures. Toll Brothers emphasizes high-end finishes and architectural craftsmanship, positioning itself in the premium segment of the U.S. housing market.
In addition to traditional homebuilding, Toll Brothers operates specialized divisions to address evolving consumer preferences.
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