Toll Brothers (TOL 0.76%), a leading U.S. luxury homebuilder, released its Q3 FY2025 earnings on August 19, 2025. The company reported GAAP earnings per share of $3.73, beating analyst expectations of $3.60. Revenue for the period was $2.88 billion, exceeding the $2.86 billion consensus. Despite modest beats on both GAAP earnings and revenue, the period revealed pressure on margins and a significant decrease in backlog units. Overall, the results showcased strength in the luxury segment but signaled increasing signs of a more difficult housing market for high-end builders.
| Metric | Q3 2025 | Q3 2025 Estimate | Q3 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $3.73 | N/A | $3.60 | 3.6% |
| Revenue (GAAP) | $2.95 billion | $2.86 billion | $2.73 billion | 8.0% |
| Home Sales Gross Margin | 25.6% | 27.4% | (1.8) pp | |
| Adjusted Home Sales Gross Margin | 27.5% | 28.8% | (1.3) pp | |
| SG&A as % of Home Sales Revenue | 8.8% | 9.0% | (0.2) pp |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.
Company Overview and Recent Focus Areas
Toll Brothers (TOL 0.76%) builds luxury single-family homes, attached townhomes, high-rise condominiums, and rental apartments in affluent areas across 24 states and the District of Columbia. Its focus on high-income buyers, combined with a diverse geographic footprint, helps lessen exposure to regional market swings. This wide-ranging presence in metropolitan suburbs and major transit hubs is a foundational strength for the business.
Recently, the company has prioritized a balance of product diversification and disciplined land acquisition. It aims to control risk by using land option agreements—contracts that secure lots before purchase—to minimize up-front capital exposure. Joint ventures are another key element, supporting both its expansion into new markets and development of rental properties. Effective backlog management, turning contracted orders into delivered homes, continues to be vital for revenue predictability and financial stability.
Quarter Highlights: Financial Performance and Trends
The period’s earnings release delivered modest beats versus analyst expectations for both GAAP revenue and profit. Revenue marked a 6% year-over-year increase, driven by a 5% rise in units delivered. The company completed 2,959 home deliveries, with GAAP home sales revenue reaching $2.88 billion. The average selling price (ASP) was $973,600.
Margins, however, moved lower. Gross margin on home sales—a measure of profit after deducting the cost to build homes—declined to 25.6% from 27.4% in Q3 FY2024 (GAAP). Adjusted gross margin, which excludes certain costs for a clearer view of recurring profit, also declined. The drop in these metrics reflects an increase in inventory impairments (including $23.3 million this quarter) and a shift in the mix of homes sold. At the same time, the company managed to shrink its selling, general, and administrative (SG&A) expenses as a percentage of revenue, improving cost efficiency.
Orders and backlog signaled cooling demand. Net signed contract units, representing new home sales, dropped 4% year over year, while the gross dollar value of contracts held flat. The average contract price increased 4.5% year-over-year. The most notable development was the backlog: the number of homes under contract but not yet delivered dropped by 19% year-over-year, and both value and units in backlog fell. Net signed contracts per community were 5.6 units, down from 6.2 units in Q3 FY2024, and cancellation rates were 3.2% of the quarter's starting backlog, up from 2.4% in Q3 FY2024.
In the Pacific region, the average price per home in backlog was $1,918,600, up from $1,513,600 in Q3 FY2024. The company did not mention notable new product launches or updates this quarter, indicating the continued strategic emphasis on its core high-end home offerings.
Toll Brothers returned $226 million to shareholders through share buybacks and dividends and spent $432.7 million on land for future communities. The company ended the period with 420 active communities, up from 404 in Q3 FY2024, demonstrating steady expansion even as growth in homes delivered moderates. Other income, income from unconsolidated entities, and gross margin from land sales and other was $15.0 million, up from $1.1 million in Q3 FY2024. The reported increase in inventory impairments, as well as the higher share of land and home inventory on the balance sheet, highlights a buildup in assets that could become more exposed if market absorption slows further. The quarterly dividend was maintained at $0.25 per share.
Outlook and What to Watch Ahead
Management provided guidance for the upcoming quarter and the rest of fiscal 2025, holding delivery targets steady at around 3,350 homes for the next quarter and 11,200 homes for the full year. Average selling prices are expected to remain near current levels, with a full-year range of $950,000 to $960,000. Adjusted home sales gross margin guidance remains unchanged at 27.25%. The company expects to maintain cost controls, with selling, general, and administrative expenses anticipated at 9.4% to 9.5% of revenue. Strategic expansion continues, with end-of-year community counts on track to reach 440 to 450.
Investors should monitor the ongoing decline in backlog units and orders per community. If demand continues to soften or inventory grows faster than sales, there could be added risk to both margins and future revenue. Pricing power remains a key advantage for now, but any decrease in confidence among luxury buyers could influence future results. Ongoing capital returns through share buybacks and dividends reflect discipline in capital allocation and maintain value for shareholders.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
