Toll Brothers (NYSE: TOL) shares rose 2.7% to $127.50 in after-hours trading Tuesday after the luxury homebuilder posted fiscal second-quarter results that exceeded analyst expectations. The company reported net income of $260.6 million, or $2.72 per diluted share, down from $352.4 million, or $3.50 per share, in the same period last year. Home sales revenue fell to $2.51 billion from $2.71 billion a year earlier, while home deliveries slipped to 2,491 units from 2,899.
Despite the year-over-year declines, Toll Brothers' results beat consensus estimates. Earnings per share came in above the $2.57 forecast, and revenue of $2.53 billion topped the $2.42 billion expected, according to data from Investing.com. The company also raised its full-year guidance for home deliveries and average selling prices, signaling confidence in its luxury market niche even as broader industry sentiment softens.
CEO Karl Mistry said the company successfully navigated a challenging environment, with net signed contracts rising 7% in units and 8% in dollars year over year. Toll Brothers now expects to deliver between 10,400 and 10,700 homes in fiscal 2026, with an average delivered price ranging from $985,000 to $1 million. The company also guided for an adjusted home sales gross margin of 26.1%, excluding interest costs and inventory write-downs.
However, the broader housing market continues to face stiff headwinds. Mortgage rates remain elevated, with the average 30-year fixed rate at 6.36% as of May 14, according to Freddie Mac. While that rate is slightly lower than the previous week, it continues to pressure affordability across the housing sector. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index rose three points to 37 in May, but readings below 50 indicate that most builders still view conditions as poor. NAHB reported that 32% of builders cut prices in May and 61% offered sales incentives.
Industry data pointed to a tepid recovery. Pending home sales in the U.S. edged up 1.4% in April, but economists remain cautious. Pantheon Macroeconomics' Oliver Allen said there is little prospect of a marked further recovery, while Oxford Economics' Nancy Vanden Houten noted that higher rates and shaky confidence will likely keep a lid on sales until later this year.
Toll Brothers' stock had closed the regular session down 2.2% at $124.14, in line with a broader decline among homebuilders. The iShares U.S. Home Construction ETF (ITB) fell 1.4% on the day, with D.R. Horton (DHI) down 2.0%, Lennar (LEN) off 0.9%, and PulteGroup (PHM) losing 0.7%. The after-hours bounce for Toll Brothers suggests investors were encouraged by the earnings beat and improved guidance, but analysts caution that the luxury builder is not immune to macroeconomic pressures.
Key metrics that investors will watch in the coming quarters include the company's ability to maintain margins in the face of rising incentives and a shrinking backlog. Toll Brothers' home sales gross margin tightened to 23.9% from 26.0% a year ago, and backlog dropped to $6.32 billion from $6.84 billion. The company's reliance on incentives to drive order growth is a particular area of focus, especially as the spring selling season moves into its later stages.
Toll Brothers is scheduled to hold its next earnings call on Wednesday morning, with CEO Mistry and Executive Chairman Douglas Yearley expected to field questions from analysts. Key topics likely to be addressed include the sustainability of order growth, demand trends in May, and the outlook for margins given the current interest rate environment.
