Toll Brothers’ second quarter results exceeded Wall Street’s revenue and non-GAAP profit expectations, despite a year-on-year decline in sales. Management pointed to a softer demand environment, driven by economic uncertainty and lower consumer confidence, as the primary challenge. CEO Douglas Yearley highlighted that the company’s performance benefited from a diversified luxury product mix and disciplined cost control. He stated, “Our results highlight the strength of our broadly diversified luxury product offerings, our balanced portfolio of build-to-order and spec homes, and our strategy of prioritizing sales base and margin in the current environment.” Management also noted that increased incentives were necessary to move spec inventory, while margins for higher-end, build-to-order homes remained strong.

Is now the time to buy TOL? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions Toll Brothers’s Q1 Earnings Call

• Stephen Kim (Evercore ISI) asked about the company’s spec inventory levels and the comfort with current inventory versus delivery targets. CFO Marty Connor detailed that over 1,000 completed spec units are available, with 2,400 more in progress, stating this is the highest concentration for the year.

• John Lovallo (UBS) inquired about gross margin sustainability and the factors balancing margin pressures from spec sales. CEO Douglas Yearley explained that higher-margin luxury and regional mix would offset lower spec margins, resulting in stable blended margins.

• Mike Dahl (RBC Capital Markets) questioned the visibility of second-half deliveries given the current backlog. Connor clarified that about 4,500 deliveries are covered by backlog, with the remainder supported by completed and in-progress spec homes, minimizing cost risk.

• Sam Reid (Wells Fargo) asked about SG&A leverage in the fourth quarter. Connor attributed expected improvements to higher revenue and tight cost controls, while noting ongoing inflationary pressures, especially in healthcare.

• Alan Ratner (Zelman & Associates) sought insights into the impact of stock market volatility and consumer confidence on demand. Yearley noted modest improvements in traffic and interest but said there were no definitive signs of a rebound yet.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of community count growth and its effect on sales absorption, (2) the ability to maintain margins amid rising incentives and a cautious market, and (3) the execution of the spec versus build-to-order mix strategy as macro conditions evolve. We will also watch for signs of a demand rebound and any impacts from potential tariffs or changes in land acquisition discipline.

Toll Brothers currently trades at $117.05, up from $104.47 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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