Toll Brothers released fiscal third-quarter results on August 18 that revealed contrasting trends in the homebuilder’s performance. While the company generated $280.1 million in net income, or $2.97 per diluted share, this represented a decline from $369.6 million and $3.73 per share in the prior-year period. Signed contracts, however, moved in the opposite direction, reaching $2.52 billion and covering 2,508 homes, compared with $2.41 billion and 2,388 homes a year earlier.
The company expanded its footprint during the quarter, growing the count of open communities to 471 from 420 a year prior. Management maintained its expectation for community count to increase between 8% and 10% for the full fiscal year, with comparable growth projected for the following year. Cancellation rates improved on both measures: they fell to 2.6% of beginning backlog from 3.2% and to 5.4% of signed contracts from 7.5%, suggesting greater buyer commitment.
Margin compression emerged as a significant headwind. Home sales gross margin compressed to 23.9% from 25.6%, while the adjusted gross margin slipped to 25.6% from 27.5%. Operating income as a percentage of total revenue declined to 13.5% from 16.6%, pressured by higher selling, general and administrative costs that climbed to 10.0% of home sales revenue from 8.8%. Deliveries fell to 2,662 homes generating $2.65 billion in revenue, down from 2,959 homes and $2.88 billion.
The company returned capital to shareholders through repurchases and dividends. Toll Brothers bought back approximately 1.4 million shares at an average price of $148.63 each for $206.8 million and paid a $0.26 per share dividend. Management raised its planned fiscal 2026 buyback authorization from $650 million to $700 million. The balance sheet remained sound with $1.06 billion in cash, available credit of $2.24 billion, and an improved debt-to-capital ratio of 24.5% from 26.0%.
Full-year guidance remained unchanged at approximately $10.5 billion in home sales revenue and 26.1% adjusted gross margin. The company recorded impairments totaling $67.4 million across inventory write-downs, land charges, and unconsolidated joint venture losses, with the latter charge representing a new item absent a year earlier. Institutional investor interest showed signs of cooling, with hedge fund ownership declining to 49 funds from 59 in the prior quarter.
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