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Toll Brothers (TOL) Beat Estimates. Can Affluent Buyers Offset Falling Home Deliveries?

Toll Brothers, Inc. (NYSE:TOL) beat consensus estimates for its fiscal third quarter even as fewer deliveries reduced home-sales revenue and weaker margins and impairment charges weighed on profit. Total revenue declined 9.7% to $2.66 billion, while deliveries fell to 2,662 homes from 2,959. Diluted earnings dropped to $2.97 per share from $3.73 but exceeded the consensus estimate of $2.93. Shares edged higher in early after-hours trading on August 18.

The mix was more encouraging than the headline decline. Toll Brothers, Inc. (NYSE:TOL) delivered homes at an average price of $996,400, while net signed contracts increased 5% in both units and value to 2,508 homes worth $2.52 billion. The question is whether affluent demand and high selling prices can protect earnings as delivery volume shrinks.

Toll Brothers, Inc. (NYSE:TOL) reaffirmed its major full-year targets, including approximately $10.5 billion of home-sales revenue and a 26.1% adjusted home-sales gross margin. It narrowed expected deliveries to 10,500 to 10,600 homes and raised the lower end of its average delivered-price forecast to $995,000.

Bull Case: Affluent Demand Is Still Converting Into Contracts

Toll Brothers, Inc. (NYSE:TOL) serves an affluent customer base. In fiscal 2025, 25% of its buyers paid entirely in cash, while financed buyers borrowed an average of 69% of the purchase price. That financing profile helps explain why signed contracts continued growing despite elevated mortgage rates.

Buyer commitment also held up. Toll Brothers, Inc. (NYSE:TOL) reported cancellations equal to 5.4% of contracts signed during the quarter, down from 7.5% a year earlier. Quarterly cancellations equaled 2.6% of beginning-quarter backlog, down from 3.2%. Buyers entering contracts are still following through, supporting future deliveries.

Toll Brothers, Inc. (NYSE:TOL) ended the quarter with 471 communities, up from 420 a year earlier, and expects 8% to 10% community-count growth for fiscal 2026. A broader footprint could offset softer sales rates at individual projects.

Bear Case: Lower Volume Is Already Pressuring Profits

Pricing did not prevent a broad earnings decline. Net income at Toll Brothers, Inc. (NYSE:TOL) fell 24% to $280.1 million, while home-sales gross margin contracted to 23.9% from 25.6%. Adjusted home-sales gross margin fell to 25.6% from 27.5%, and SG&A increased to 10.0% of home-sales revenue from 8.8%.

Contract growth also benefited from having more communities open. Toll Brothers, Inc. (NYSE:TOL) recorded 5.4 signed contracts per community, down from 5.6 a year earlier, while backlog declined to 5,312 homes worth $6.24 billion. Affluent buyers remain active, but sales productivity and future delivery visibility have weakened.

Insider Monkey’s Hedge Fund Data

The filings available so far reflect positions held before the fiscal third-quarter results. Insider Monkey’s database showed 59 hedge funds holding Toll Brothers, Inc. (NYSE:TOL) at the end of March 2026, down from 46 funds at the end of the preceding quarter.

Conclusion

Toll Brothers, Inc. (NYSE:TOL) remains better insulated than builders targeting less affluent buyers. High selling prices, low cancellations, and contract growth support that distinction. However, the profit decline shows the limit of relying on customer mix when deliveries and margins are falling.

Affluent demand can cushion a housing slowdown, but pricing cannot offset shrinking volumes indefinitely. The stronger signal would be stabilizing deliveries without sacrificing price or margin.

While we acknowledge the risk and potential of TOL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TOL and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: ConocoPhillips (COP): Wall Street Sees More Upside Despite Leadership Shakeup and Here is Why Chevron (CVX) is a Favorite Among Hedge Funds

Disclosure: None. This article is originally published at Insider Monkey.

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