Toll Brothers, Inc. Q4 FY2025 earnings call

• Fiscal 2025 performance was strong despite a difficult sales environment, with record home sales and earnings.
• The business is more nimble with broader geographies, product lines, and price points, and a balanced portfolio of build-to-order and spec homes.
• Specs accounted for 54% of deliveries in fiscal 2025, appealing to buyers seeking quicker move-ins and allowing customization.
• Fourth quarter net agreements were down but sales improved as the quarter progressed, with mortgage rates stabilizing and demographics/supply trends supporting demand.
• High percentage of cash buyers, low LTVs, and low cancellation rates were noted. The company controlled ~76,000 lots, repurchased $652 million in stock and paid $97 million in dividends in fiscal 2025, and announced the sale of its Apartment Living business to Kennedy Wilson, expected to complete by end of first quarter 2026.

In fiscal 2025, Toll Brothers delivered 11,292 homes with an average price of $960,000, generating a record $10.8 billion in home sales revenue. The adjusted gross margin was 27.3%, SG&A margin 9.5%, and earnings per diluted share were $13.49. In the fourth quarter, the company generated $3.4 billion in home sales revenue with an adjusted gross margin of 27.1% and an SG&A margin of 8.3%, earning $4.58 per diluted share. Specs accounted for approximately 54% of deliveries in fiscal 2025.

• Fiscal 2026 first quarter deliveries projected at 1,800-1,900 homes with average price $985,000-$995,000.
• Full year 2026 new home deliveries projected at 10,300-10,700 homes with average price $970,000-$990,000.
• Adjusted gross margin expected to be ~26.25% in first quarter 2026 and ~26.0% for full year.
• SG&A as % of home sale revenues projected at ~14.2% in first quarter 2026 and ~10.25% for full year.
• Projected $650 million share repurchases in fiscal 2026, with community count growth 8%-10% by end of fiscal 2026.

• Factors beyond control such as economy, world events, housing/financial markets, interest rates, labor/materials availability, and inflation could affect results.
• Uncertainty in the housing market due to soft conditions, consumer confidence, and resale market dynamics.
• Potential impact of slower sales pace on margins if not managed properly.

Q: Stephen Kim asked about the active adult buyer, age breakdown of buyers, and land trends.

A: Douglas Yearley responded that the active adult group outperforms, first-time buyers are older and more affluent, and the company is being disciplined in land underwriting with good deal flow but conservative underwriting.

Q: John Lovallo inquired about guidance cushion and gross margin moderation.

A: Douglas Yearley stated the guidance is conservative with no market improvement assumed, and gross margin moderation is due to spec deliveries in later parts of the year requiring higher incentives.

Q: Trevor Allinson asked about fourth quarter orders outperformance and new home inventory in challenged markets.

A: Gregg Ziegler mentioned strong results in various geographies, and Douglas Yearley noted new home inventory is more concentrated at the entry level, with the company's core business at $1 million homes not seeing significant impact.

Q: Richard Reid wanted context on SG&A.

A: Douglas Yearley said SG&A is a conservative guide, with 50 basis points from leverage on less revenue and 25 basis points from wage/inflation/commission factors.

Q: Alan Ratner asked about share buyback guide and consumer confidence.

A: Gregg Ziegler said $650 million buyback guide is prudent, and Douglas Yearley discussed consumer psychology and the impact of time and rate cuts on market improvement