Toll Brothers, Inc. 10-Q Summary: Quarter Ended July 31, 2026
Business Context and Reporting Period
This report covers the quarterly period ended July 31, 2026, and the nine-month period ended on the same date. Toll Brothers, Inc. is a large accelerated filer and a leading luxury homebuilder operating across five geographic segments: North, Mid-Atlantic, South, Mountain, and Pacific. The company operates 471 selling communities as of the period end.
Key Financial Metrics
| Metric | Three Months Ended July 31, 2026 | Nine Months Ended July 31, 2026 |
|---|---|---|
| Total Revenues | $2.66 billion | $7.34 billion |
| Net Income | $280.1 million | $751.7 million |
| Diluted EPS | $2.97 | $7.87 |
| Home Sales Gross Margin | 23.9% | 24.1% |
| Operating Cash Flow (9 months) | $392.1 million | $392.1 million |
| Cash and Equivalents | $1.06 billion | $1.06 billion |
| Total Debt (Loans + Senior Notes) | $2.64 billion | $2.64 billion |
| Backlog Value | $6.24 billion | $6.24 billion |
| Backlog Units | 5,312 | 5,312 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 10% year-over-year (Q3) and 3% year-over-year (9 months). Home sales revenue dropped 8% in Q3 and 5% in the 9-month period, primarily due to a 10% decrease in the number of homes delivered.
- Profitability Pressure: Net income fell 24% in Q3 and 16% in the 9-month period compared to the prior year. Operating income decreased 26% in Q3 and 20% in the 9-month period.
- Margins: Home sales gross margin compressed to 23.9% in Q3 (from 25.6% prior year) and 24.1% for the 9-month period (from 25.6% prior year). This was driven by higher sales incentives on spec homes and increased inventory impairment charges.
- Land Sales Volatility: Land sales and other revenues dropped 90% in Q3 due to the absence of large asset sales seen in the prior year, though the 9-month period saw a significant increase due to the sale of Apartment Living assets.
- Backlog: Backlog value decreased 2% year-over-year to $6.24 billion, while backlog units decreased 3% to 5,312 homes.
Guidance, Outlook, and Risks
- Market Outlook: Management anticipates softer overall demand for new homes in the near term due to elevated mortgage rates, weak consumer confidence, and geopolitical volatility. However, they maintain a positive long-term outlook supported by favorable demographics and a structural undersupply of homes.
- Strategic Adjustments: The company is strategically managing pricing and incentive levels to balance sales pace with margins. They are increasing the use of "spec homes" (built without a buyer) to attract buyers seeking quicker move-in schedules, though these typically carry lower gross margins.
- Asset Disposition: The company substantially completed the sale of approximately half of its Apartment Living portfolio to Kennedy Wilson in Q1 2026, generating net cash proceeds of approximately $330 million. This transaction is expected to continue as they sell retained interests over time.
- Impairment Charges: Significant other-than-temporary impairment charges were recognized on investments in Rental Property Joint Ventures ($39.6 million in Q3; $97.4 million for 9 months), offsetting gains from asset sales.
- Liquidity: The company maintains strong liquidity with $1.06 billion in cash and $2.24 billion available under its Revolving Credit Facility. Debt covenants were met as of July 31, 2026.
Key Facts for Investor Verification
- Inventory Impairments: Verify the magnitude and geographic concentration of the $61.8 million in inventory impairment charges recognized in the first nine months of fiscal 2026, which impacted gross margins.
- Joint Venture Exposure: Review the $97.4 million in impairment charges related to Rental Property Joint Ventures and the remaining funding commitments of $269 million to unconsolidated entities.
- Backlog Conversion: Monitor the conversion rate of the $6.24 billion backlog, noting that a larger portion of recent contracts are for spec homes which may not remain in backlog as long as build-to-order homes.
- Debt Maturities: Confirm the status of the $450 million Senior Notes due March 15, 2027, and the amended Term Loan Facility maturities extending to 2030 and 2031.
- Apartment Living Exit: Track the progress of the remaining asset sales from the Apartment Living portfolio to Kennedy Wilson and the associated tax implications.