8-K: Toll Brothers Q2 2026 Results Show Lower Net Income, Higher Orders

Toll Brothers reported a decrease in net income and revenue for its second quarter of FY 2026 compared to the prior year, but saw an increase in net signed contracts and raised full-year guidance.

Summary

• Toll Brothers reported net income of $260.6 million ($2.72 per diluted share) for the second quarter of FY 2026, down from $352.4 million ($3.50 per diluted share) in the same quarter of FY 2025.
• Home sales revenues decreased to $2.51 billion from $2.71 billion year-over-year, with 2,491 homes delivered compared to 2,899.
• However, net signed contract value increased to $2.81 billion from $2.60 billion, with 2,834 contracted homes versus 2,650.
• Backlog value stood at $6.32 billion at the end of the quarter, down from $6.84 billion in the prior year.
• Home sales gross margin was 23.9%, down from 26.0%, and adjusted home sales gross margin was 26.2%, down from 27.5%.
• The company repurchased approximately 1.2 million shares for $175.4 million.
• Toll Brothers raised its full-year guidance across key home building metrics based on year-to-date performance.
• The company ended the quarter with $1.11 billion in cash and cash equivalents and $2.24 billion available under its revolving credit facility.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed but cautiously optimistic report. While revenues and net income are down year-over-year, the increase in orders, raised full-year guidance, and strong share repurchases indicate positive underlying business momentum.

Positives

• Net signed contract value increased by 7% in units and 8% in dollars year-over-year, reaching $2.81 billion.
• The company raised its full-year guidance for key home building metrics.
• Adjusted home sales gross margin of 26.2% was 70 basis points above guidance.
• SG&A expense as a percentage of home sales revenues was 10.3%, 40 basis points better than guidance.
• Community count increased by 9% year-over-year.
• The company controls sufficient land for continued 8% to 10% growth in 2027 and beyond.
• Toll Brothers repurchased $175 million of common stock in the quarter, totaling $226 million year-to-date.
• The quarterly cash dividend was increased by 4% to $0.26 per share.

Negatives

• Net income decreased to $260.6 million from $352.4 million year-over-year.
• Home sales revenues decreased to $2.51 billion from $2.71 billion.
• Number of delivered homes decreased to 2,491 from 2,899.
• Home sales gross margin decreased to 23.9% from 26.0%.
• Adjusted home sales gross margin decreased to 26.2% from 27.5%.
• SG&A as a percentage of home sales revenues increased to 10.3% from 9.5%.
• Backlog value decreased to $6.32 billion from $6.84 billion.
• Pre-tax inventory impairments increased to $32.5 million from $9.8 million.

Risks

• General economic conditions, including employment rates, housing starts, inflation rates, interest and mortgage rates, and availability of financing for home mortgages.
• Market demand for products, influenced by U.S. business segments and economic conditions.
• Availability and cost of desirable land and the ability to control, purchase, hold, and develop it.
• Access to adequate capital on acceptable terms.
• Geographic concentration of operations.
• Levels of competition.
• Price and availability of lumber, other raw materials, home components, and labor.
• Effects of weather and natural disasters, and associated risks like delays, reduced demand, unavailability of insurance, and shortages/price increases in labor or materials.

Future Outlook

Toll Brothers is raising its full-year guidance across all key home building metrics. The company anticipates delivering between 2,600 - 2,700 units in the third quarter and 10,400 - 10,700 units for the full fiscal year. Average delivered price per home is projected between $965,000 - $985,000 for Q3 and $985,000 - $1,000,000 for the full year. Adjusted home sales gross margin is guided at 25.25% for Q3 and 26.10% for the full year. SG&A as a percentage of home sales revenues is expected to be 10.0% for Q3 and 10.10% for the full year. Period-end community count is projected at 475 for Q3 and 480-490 for the full year.

Management Comments

• "In the second quarter, we once again successfully navigated a challenging market and produced strong results."
• "Our strong results continue to reflect our unique position as the nations leading builder of luxury homes, with operations spanning more than 60 markets across the country."
• "With a strong balance sheet, attractive margins and significant operating cash flows, we are well positioned to invest in the growth of our business and deliver strong returns to stockholders."
• "Based on our year-to-date performance, we are raising our full year guidance across all key home building metrics."

Industry Context

StockSavvy.ai notes that Toll Brothers' results reflect a dynamic housing market where demand for luxury homes remains resilient, even as overall market conditions present challenges. The company's ability to increase orders and raise full-year guidance, despite a year-over-year decline in revenue and net income, highlights its strategic positioning and operational execution in a competitive landscape.

Comparison to Industry Standards

• Toll Brothers' adjusted home sales gross margin of 26.2% for Q2 FY26 is strong compared to the broader industry average, which can fluctuate but often hovers in the low to mid-20s for many builders.
• The company's focus on the luxury segment, with an average delivered price per home of $1,009,000 in Q2 FY26, positions it differently from builders focused on entry-level or mid-market segments.
• Competitors like PulteGroup and Lennar also report on gross margins, but direct comparison requires careful adjustment for differences in product mix, geographic focus, and accounting for interest and impairments.
• Toll Brothers' SG&A as a percentage of revenue (10.3%) is a key operational metric to compare against peers, aiming for efficiency in sales and marketing efforts.

Stakeholder Impact

• Shareholders: Benefit from increased dividends and share repurchases, and potentially from the raised full-year guidance and future growth prospects.
• Employees: Continued growth and operational success can lead to job security and potential bonuses or incentives.
• Suppliers: Consistent demand for materials and services, though subject to market fluctuations.
• Creditors: The company maintains a strong balance sheet and available credit facilities, indicating continued ability to service debt.

Next Steps

• Continue to monitor market conditions and adjust operations accordingly.
• Execute on the raised full-year guidance for deliveries, revenue, and margins.
• Invest in land acquisition and development to support future growth.
• Continue returning capital to stockholders through share repurchases and dividends.

Key Dates

Recommendation

The report shows a mixed performance with declining revenues and net income year-over-year, offset by strong order growth and raised full-year guidance. The company's strategic positioning in the luxury market and capital return initiatives are positive, but the broader economic uncertainties and margin pressures warrant a 'hold' rating until clearer market trends emerge.

Keywords

Toll Brothers, home builder, luxury homes, real estate, financial results, SEC filing, 8-K, housing market