Toll Brothers(US:TOL)2025-08-20 13:32Financial Data and Key Metrics Changes - The company delivered 2,959 homes at an average price of $974,000, generating record third-quarter home sale revenues of $2,900,000,000, which represents a 5% increase in units and a 6% increase in dollars compared to the previous year's third quarter [6][14]. - Adjusted gross margin for the quarter was 27.5%, exceeding guidance by 25 basis points, while SG&A expenses were 8.8% of home sales revenues, 40 basis points better than guidance [6][16]. - Earnings for the quarter were $370,000,000, or $3.73 per diluted share, with a return of approximately $226,000,000 to stockholders through dividends and share repurchases [6][19]. Business Line Data and Key Metrics Changes - The company signed 2,388 net contracts for $2,400,000,000, reflecting a 4% decline in units but flat in dollars due to an increase in average sales price to just over $1,000,000 [6][15]. - The average price of contracts signed in the quarter was $1,010,000, while the average price in the backlog was $1,160,000, indicating strong financial profiles of buyers [16][9]. - The cancellation rate was 3.2% of the beginning backlog, compared to 2.4% in the previous year's third quarter, reflecting the financial strength of buyers [10]. Market Data and Key Metrics Changes - The company ended the third quarter with 420 active selling communities and expects to reach 440 to 450 communities by the end of the fiscal year, representing 8% to 10% year-over-year growth [11][12]. - The company has 3,200 spec homes at various stages of construction and another 1,800 building permits ready to go, allowing for quick ramp-up in production as market conditions improve [8][9]. Company Strategy and Development Direction - The company continues to prioritize price and margin over pace, actively managing spec starts and inventory levels on a community-by-community basis to match local market conditions [7][11]. - The strategy of selling spec homes at various stages of construction allows buyers to personalize their homes while providing a faster construction schedule [8][9]. - The company remains focused on capital-efficient deal structures and maintaining a strong land position to support long-term growth [12][19]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining a full-year adjusted gross margin of 27.25% and expects to deliver approximately 11,200 homes for the full year [21][22]. - The management noted that building costs are beginning to come down modestly, with no significant impact from tariffs expected this fiscal year [10][11]. - There is optimism regarding community count growth and sales pace for fiscal year 2026, with expectations of 20 to 30 openings in Q4 [34][39]. Other Important Information - The company issued $500,000,000 of ten-year senior notes at a 5.6% coupon and called $350,000,000 of senior notes scheduled to mature in November, extending the weighted average years to maturity of senior notes [19]. - The company spent $433,000,000 on new land acquisitions during the quarter, maintaining a disciplined approach to underwriting [12][19]. Q&A Session Summary Question: Cash flow from operations guidance - The company expects to generate over $1,000,000,000 in cash flow from operations, with year-to-date cash flow around $400 million [27][28]. Question: Sales pace and incentives - Sales pace improved from May to August, with incentives increasing from 7% to 8% primarily due to discounting on finished spec homes [48][49]. Question: Order picture for Q4 - Management is optimistic about community count growth in Q4, with new openings expected to drive orders [60][61]. Question: Development costs and cycle times - The company has not seen much relief on land development costs, and cycle times vary across communities, with efforts ongoing to improve efficiency [68][77]. Question: Spec mix and margin differentials - The current spec mix is around 50%, compared to 10-15% pre-COVID, with margins on build-to-order homes being higher than spec homes [88][89].