Toll Brothers, Inc. 10-Q Summary: Fiscal Q2 2026
Business Context and Reporting Period
This report covers the quarterly period ended April 30, 2026, and the six-month period ended on the same date. Toll Brothers, Inc. is a large accelerated filer engaged in the design, construction, and sale of luxury homes across five geographic regions: North, Mid-Atlantic, South, Mountain, and Pacific. The company operates primarily on a build-to-order basis but has increased its inventory of "spec homes" (homes started without a buyer) to improve delivery speed.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenues | $2.53 billion | $2.74 billion | $4.68 billion | $4.60 billion |
| Home Sales Revenues | $2.51 billion | $2.71 billion | $4.37 billion | $4.55 billion |
| Net Income | $260.6 million | $352.4 million | $471.5 million | $530.2 million |
| Diluted EPS | $2.72 | $3.50 | $4.91 | $5.24 |
| Operating Cash Flow (YTD) | $141.7 million | ($57.9 million) | $141.7 million | ($57.9 million) |
| Cash & Equivalents | $1.11 billion | $686.5 million | $1.11 billion | $686.5 million |
| Debt to Total Capitalization | 0.25 to 1.00 | N/A | 0.25 to 1.00 | N/A |
Liquidity: As of April 30, 2026, the company held $1.11 billion in cash and cash equivalents. It has a $2.38 billion Revolving Credit Facility with approximately $2.24 billion available for borrowing (no outstanding borrowings). The company also holds $1.75 billion in senior notes.
Material Changes vs. Prior Period
- Revenue Decline: Home sales revenues decreased 7% in Q2 and 4% YTD compared to the prior year, primarily driven by a 14% (Q2) and 10% (YTD) decrease in the number of homes delivered. This was partially offset by an 8% (Q2) and 7% (YTD) increase in the average delivered price.
- Profitability Pressure: Net income declined 26% in Q2 and 11% YTD. Operating income decreased 23% in Q2 and 15% YTD. Gross margins were impacted by higher sales incentives and increased inventory impairment charges.
- Land Sales Volatility: Land sales and other revenues dropped 42% in Q2 but surged significantly YTD (from $51.0M to $309.4M) due to the sale of approximately half of the Apartment Living portfolio and related land parcels, generating a pre-tax gain of $18.8 million.
- Backlog Reduction: Backlog value decreased 8% to $6.32 billion (5,394 homes) compared to $6.84 billion (6,063 homes) in the prior year. The unit count dropped 11%, while the average contracted price increased 4%.
- Impairment Charges: Inventory impairment charges increased significantly to $32.5 million in Q2 (vs. $9.8M prior year) and $44.2 million YTD (vs. $26.2M prior year). Additionally, the company recognized $57.8 million in other-than-temporary impairment charges on Rental Property Joint Ventures YTD.
Guidance, Outlook, and Risks
Management Commentary: Demand remains generally consistent with the prior year but is challenged by affordability pressures, weak consumer confidence, and geopolitical volatility. The company serves an affluent customer base, which mitigates some affordability impacts. Management anticipates softer near-term demand, leading to continued elevated incentive levels and slower sales paces. The company is strategically managing pricing and inventory levels.
Strategic Actions:
- Apartment Living Exit: Substantially completed the sale of half of the Apartment Living portfolio to Kennedy Wilson for net cash proceeds of approximately $330 million.
- Acquisition: Acquired Buffington Homes of Arkansas in May 2026, adding approximately 1,500 home sites.
- Capital Allocation: Continued share repurchases ($230 million YTD) and increased the quarterly dividend to $0.26 per share.
Risks and Contingencies:
- Market Conditions: Sensitivity to interest rates, mortgage rates, and inflation affecting home affordability.
- Supply Chain: Risks related to labor shortages and material costs (lumber, etc.).
- Joint Venture Exposure: Significant exposure to unconsolidated entities with $417.2 million in maximum estimated exposure under repayment and carry cost guarantees.
- Legal: Ongoing litigation in the ordinary course of business, though reserves are deemed adequate.
Investor Verification Checklist
- Backlog Conversion: Verify the rate at which the current backlog of 5,394 homes is being converted to deliveries given the reported slowdown in sales pace.
- Impairment Sustainability: Assess whether the elevated inventory impairment charges ($44.2M YTD) are a one-time adjustment or indicative of broader pricing pressure in specific regions (notably Pacific and Mountain).
- Apartment Living Disposition: Confirm the timeline and financial impact of the remaining asset sales from the Apartment Living portfolio exit.
- Debt Maturity Profile: Review the amended debt maturities (Term Loan extended to 2031) and ensure liquidity remains sufficient to cover the $450 million Senior Notes due in March 2027.
- Spec Home Inventory: Monitor the ratio of spec homes to build-to-order homes to evaluate inventory risk if demand softens further.