- Record Revenue and Profitability: Fiscal 2025 generated $10.8B in home sales revenue with 27.3% adjusted gross margin and $13.49 EPS, driven by 11,292 homes at $960K average price.
- Strong Cash Flow and Shareholder Returns: $1.1B operating cash flow, returning $750M to stockholders via buybacks and dividends in 2025; $650M share repurchase guidance for 2026.
- Community Growth and Conservative 2026 Outlook: 9% community count growth in 2025; 2026 guidance targets 10,300–10,700 homes (+$970K avg price) with 26% adjusted gross margin, 8–10% community growth, and 60–40 owned/option lot ratio.
- Segment Strength and Market Position: Active adult segment (17% revenue) and move-up/down buyers (70% sales) performing well; luxury focus (54% spec homes) less impacted by affordability pressures.
- Cost and Inventory Management: 7–8% lot cost inflation in 2025, with 2026 assuming flat costs; $80K/house incentives flat, $2–3/sq ft construction cost reduction expected, and 2 sales/month/community target.
Operational Highlights
The company grew its community count by 9% and produced strong operating cash flows of $1.1 billion, returning approximately $750 million to stockholders through share repurchases and dividends. Toll Brothers' luxury business, which serves a more affluent customer less impacted by affordability pressures, is a key differentiator. Spec homes accounted for approximately 54% of deliveries in fiscal 2025.
Guidance and Outlook
For fiscal 2026, the company projects new home deliveries of 10,300-10,700 homes with an average price between $970,000 and $990,000, and an adjusted gross margin of approximately 26.0%. The company expects to grow community count by 8-10% and targets 480-490 communities. Guidance for 2026 is conservative, not assuming market improvement or rate decreases. The company's guidance assumes a flat land cost environment and a lower backlog, with 2 sales per month per community, which is a low number historically.
Valuation and Metrics
With a P/E Ratio of 10.05, P/B Ratio of 1.64, and EV/EBITDA of 8.15, Toll Brothers' valuation appears reasonable. The company's ROE stands at 16.77%, indicating strong profitability. Analysts estimate next year's revenue growth at -2.9%, which is factored into the current valuation. The company's Dividend Yield is 0.7%, and Free Cash Flow Yield is 6.82%, providing a decent return for investors.
Market Trends and Challenges
Toll Brothers is cautious about market trends, citing affordability, mortgage rates, and job growth as key factors influencing consumer confidence. The company sees a potential for improvement with lower rates and increased confidence. The exit from the multifamily business has allowed the company to focus on its core homebuilding business, and the proceeds have been used to grow the business and return capital to shareholders.