Toll Brothers Earnings: More Affordable Price Points and Spec Homes Continue to Pay Off

Luxury-focused homebuilder Toll Brothers reported strong fiscal second-quarter results (ended April 30). Total revenue and earnings were both above management’s guidance and FactSet consensus estimates. In our view, Toll’s second-quarter financial performance shows that its more-affluent prospective homebuyer base remains resilient even with the 30-year average fixed mortgage rate exceeding 7%. Furthermore, the no-moat-rated homebuilder’s strategic shift to offering more affordable price points and building more speculative homes has supported strong new order growth. Toll’s “affordable luxury” products have allowed it to better tap into the first-time buyer base, and its spec strategy (sometimes called quick move-in homes) allows the builder to better capitalize on the limited supply of existing for-sale homes.