Why Is Toll Brothers (TOL) Down 14.4% Since Last Earnings Report?

Core Viewpoint - Toll Brothers has reported strong first-quarter fiscal 2026 results, with earnings and revenues exceeding estimates, but faces challenges from macroeconomic factors and a decline in home sales gross margins [2][4]. Financial Performance - Adjusted earnings per share (EPS) for Q1 fiscal 2026 were $2.19, surpassing the Zacks Consensus Estimate of $2.05 by 6.8% and increasing 25.1% year-over-year [5]. - Total revenues reached $2.15 billion, exceeding the consensus mark of $1.84 billion and reflecting a 15.4% year-over-year increase [5]. Sales and Deliveries - Home sales revenues increased by 0.5% year-over-year to $1.85 billion, while home deliveries decreased by 4.6% to 1,899 units [6]. - The average selling price (ASP) of homes delivered was $976,800, up 5.6% from $924,600 in the previous year [6]. Contracts and Backlog - Net-signed contracts totaled 2,303 units, slightly down from 2,307 units year-over-year, but the value of these contracts rose to $2.38 billion from $2.31 billion [7]. - The backlog at the end of Q1 was 5,051 homes, a 20% decrease year-over-year, with potential revenues from the backlog declining 13.3% to $6.02 billion [7]. Margins and Expenses - The cancellation rate for signed contracts was 5.4%, down from 5.8% in the prior year [8]. - Adjusted home sales gross margin was 24.8%, a contraction of 20 basis points, while SG&A expenses as a percentage of home sales revenues increased to 13.9% from 13.1% [8]. Balance Sheet and Cash Flow - Cash and cash equivalents stood at $1.2 billion, down from $1.26 billion at the end of fiscal 2025, with a debt-to-capital ratio decreasing to 24.4% [9]. - The company repurchased approximately 0.3 million shares for a total of $50.5 million during the first quarter [9]. Guidance - For Q2 fiscal 2026, Toll Brothers expects home deliveries between 2,400-2,500 units at an average price of $975,000-$985,000 [11]. - For fiscal 2026, home deliveries are anticipated to be in the range of 10,300-10,700 units, reflecting a decline from 11,292 in fiscal 2025 [13]. Estimate Trends - There has been a downward trend in estimates, with the consensus estimate shifting down by 14.57% [15]. VGM Scores - Toll Brothers currently has a subpar Growth Score of D and a Momentum Score of F, but a grade of B on the value side, resulting in an aggregate VGM Score of D [16]. Outlook - Estimates for Toll Brothers have been trending downward, and the company holds a Zacks Rank 3 (Hold), indicating an expectation of in-line returns in the coming months [17].