Strong Results but Profit Contraction: Toll Brothers’ Performance in the First Half of Fiscal 2025

Toll Brothers, the leading luxury‑home builder in the United States, has released its first‑ and second‑quarter results for fiscal 2025. The figures paint a two‑layered picture: revenue and deliveries continue to climb, yet net profit is being squeezed by higher operating costs, the absence of one‑off gains recorded last year and persistent pressure on margins. Even so, management is standing by its full‑year outlook for 2025, citing a substantial order backlog and steady demand for the company’s premium product range.

Revenue Growth and Accelerated Deliveries

In the first quarter, which ended on 31 January 2025, home‑building revenue reached USD 1.84 billion—five per cent lower than the same quarter a year earlier—while the number of homes delivered rose by three per cent to 1,991 units. The average selling price held firm at about USD 925 thousand, underscoring the resilience of the luxury segment even in a challenging macro‑economic environment.
The second quarter, which closed on 30 April, saw revenue edge up by two per cent to USD 2.71 billion, with deliveries surging ten per cent to 2,899 units. On a half‑year basis, revenue totalled USD 4.55 billion—virtually unchanged from the first half of 2024—yet deliveries advanced five per cent to 4,890 homes.

Profitability Erosion amid Cost Pressures and Accounting Noise

Despite the expansion in sales, first‑quarter net profit slipped to USD 177.7 million, or USD 1.75 per diluted share, from USD 239.6 million a year earlier. The decline stemmed chiefly from inventory‑write‑down charges and the delayed sale of an income‑producing property, both of which dragged on operating income.
Second‑quarter net profit came in at USD 352.4 million, or USD 3.50 per share, down roughly 27 per cent from the prior‑year period, when the company benefited from a one‑time commercial‑land transaction. The gross margin on home sales stood at 25 per cent in the first quarter and 26 per cent in the second; on an adjusted basis—excluding interest and write‑downs—the margin stabilised at 26.9 per cent and 27.5 per cent respectively. Overheads told a similar story: SG&A expenses rose to 13.1 per cent of revenue in the first quarter before easing to 9.5 per cent in the second.

Operational Strength versus Softer Orders

Contract signings continue to indicate healthy but moderating demand. On a dollar basis, net signed contracts climbed 12 per cent in the first quarter to USD 2.31 billion, yet fell 11 per cent in the second to USD 2.60 billion. At the end of April, the backlog stood at USD 6.84 billion—or 6,063 homes—reflecting declines of seven per cent in value and fifteen per cent in unit terms relative to the prior year. Management argues that the gap between robust demand at higher price points and the financing constraints facing mid‑market buyers will remain a prominent feature; nevertheless, a broad geographic footprint and an upgraded product mix are expected to preserve price levels and margins.

Solid Balance Sheet and Capital‑Return Policy

The company closed the second quarter with cash and cash equivalents of USD 686.5 million, complemented by a further USD 2.19 billion of available liquidity under its revolving credit facility. Total debt‑to‑equity registered 26.1 per cent, while net‑debt‑to‑equity fell to 19.8 per cent—an improvement on the first quarter.
Toll Brothers also pressed ahead with share buy‑backs: 200 thousand shares were repurchased in the first quarter at a cost of USD 23.7 million, followed by a sizeable 1.6 million‑share repurchase in the second quarter for USD 177.4 million. In March the board raised the quarterly dividend to USD 0.25 per share, extending a five‑year streak of annual dividend increases.

2025 Outlook: Management Sticks to Targets

Notwithstanding a volatile macro‑backdrop, the company has reaffirmed the guidance issued in February: deliveries of 11,200 to 11,600 homes in fiscal 2025, an average selling price of USD 945 to 965 thousand, an adjusted gross margin of 27.25 per cent and SG&A expenses of 9.4 to 9.5 per cent of revenue. Addressing investors on 21 May, Chief Executive Douglas Yearley emphasised that the cumulative housing shortage, demographic growth among affluent households and the ageing stock of existing homes should continue to underpin demand, even if interest‑rate volatility dictates an uneven sales rhythm.

Looking Ahead

The first half of 2025 presents a nuanced picture: on the one hand, Toll Brothers is growing revenue and maintaining competitive margins in a capital‑intensive sector; on the other, the slide in net profit highlights the company’s sensitivity to project‑level costs, inventory write‑downs and the absence of extraordinary gains. A robust balance sheet, selective land‑acquisition strategy and a portfolio centred on luxury homes provide a buffer against fluid market conditions. Should interest rates stabilise—so long as the chronic undersupply in the US housing market persists—the company is positioned to resume profit growth in coming years; success, however, will depend on disciplined pricing and agile inventory management in line with shifting demand.