Homebuilding company Toll Brothers (NYSE:TOL) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 8% year on year to $2.95 billion. Its non-GAAP profit of $3.73 per share was 3.8% above analysts’ consensus estimates.
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Toll Brothers (TOL) Q2 CY2025 Highlights:
- Revenue: $2.95 billion vs analyst estimates of $2.86 billion (8% year-on-year growth, 3.1% beat)
- Adjusted EPS: $3.73 vs analyst estimates of $3.60 (3.8% beat)
- Operating Margin: 16.6%, down from 18.6% in the same quarter last year
- Backlog: $6.38 billion at quarter end, down 9.7% year on year (1% miss)
- Market Capitalization: $12.88 billion
Douglas C. Yearley, Jr., chairman and chief executive officer, stated: “We are pleased to report another strong quarter. We delivered 2,959 homes at an average price of $974,000, generating record third quarter home sales revenues of $2.9 billion, a 6% increase over last year. We achieved an adjusted gross margin of 27.5%, or 25 basis points above guidance, and our SG&A margin of 8.8% was 40 basis points better than guidance. We earned $370 million after taxes, or $3.73 per diluted share, and returned $226 million to stockholders through share repurchases and dividends, positioning us for another year of healthy profitability and solid returns.
Company Overview
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE:TOL) is a luxury homebuilder across the United States.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Toll Brothers’s sales grew at a solid 9.5% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Toll Brothers’s recent performance shows its demand has slowed as its revenue was flat over the last two years. 
Toll Brothers also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Toll Brothers’s backlog reached $6.38 billion in the latest quarter and averaged 6.3% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future. 
This quarter, Toll Brothers reported year-on-year revenue growth of 8%, and its $2.95 billion of revenue exceeded Wall Street’s estimates by 3.1%.
Looking ahead, sell-side analysts expect revenue to decline by 1.3% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Toll Brothers has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.9%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.
Analyzing the trend in its profitability, Toll Brothers’s operating margin rose by 6 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, Toll Brothers generated an operating margin profit margin of 16.6%, down 2 percentage points year on year. Since Toll Brothers’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Toll Brothers’s EPS grew at an astounding 32.7% compounded annual growth rate over the last five years, higher than its 9.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Toll Brothers’s earnings to better understand the drivers of its performance. As we mentioned earlier, Toll Brothers’s operating margin declined this quarter but expanded by 6 percentage points over the last five years. Its share count also shrank by 22.2%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Toll Brothers, its two-year annual EPS declines of 1.4% mark a reversal from its (seemingly) healthy five-year trend. We hope Toll Brothers can return to earnings growth in the future.
In Q2, Toll Brothers reported adjusted EPS of $3.73, up from $3.64 in the same quarter last year. This print beat analysts’ estimates by 3.8%. Over the next 12 months, Wall Street expects Toll Brothers’s full-year EPS of $13.61 to grow 3.1%.
Key Takeaways from Toll Brothers’s Q2 Results
We enjoyed seeing Toll Brothers beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its backlog, which is a key leading revenue indicator, missed. Zooming out, we think this was a mixed quarter. The market seemed to be hoping for more, and the stock traded down 1.7% to $130 immediately after reporting.
Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.