Toll Brothers Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Stephen Kim - Evercore ISI - Analyst : Yeah, thanks very much guys. Appreciate the color. I guess I wanted to start off by just talking about your inventory. You talked about the fact that your spec levels where you were comfortable with them as well as the stage of construction and we can see that your specs actually came in a little lighter than we were expecting. So that all seems positive. That being said, your inventory did rise a lot, particularly the construction in progress, number rose pretty significantly. And I was curious if you could talk about what drove that? Was there something about the land or the land on which you're building these homes, which has a greater value where are you just naturally, are you at a later stage of construction, but you're just comfortable with it? If you could help us understand sort of what's going into the much higher inventory number that we saw this quarter?

Question: Stephen Kim - Evercore ISI - Analyst : And I thought you were going to continue there because you also had talked about the fact that you were looking to maybe slow down a little bit on your specs as you headed later the year, later in the year. Is this something that we should just, is this just the kind of the natural cadence that we should expect to see from you from this point forward as we go into the spring, just carrying more specs and that sort of thing and then sort of bringing that down as we go later in the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 1:30PM, TOL.N - Q1 2025 Toll Brothers Inc Earnings Call

Question: Stephen Kim - Evercore ISI - Analyst : Yeah. That's very helpful. And it kind of leads into the next question I have, which is about the spring selling season. So you made the comment about it being mixed. And I think that, that is something that we've been hearing from a number of folks. I guess what I really wanted to understand is what is the company's posture relative to your production pipeline and your anticipated land spend over the next year or two, if the spring selling season continues to be mixed. Is this an environment which will cause you to have to pivot in some way? And if so, what kind of pivot or nudging the dial one way or the other, should we be expecting if the spring selling season remains mixed?

Question: John Lovallo - UBS - Analyst : Good morning guys. Thanks for taking my questions as well. Maybe just starting off on the gross margin. The second quarter gross margin outlook would seem to imply sort of steady fiscal year 2Q to 4Q gross margins to achieve that full year target of 27.25%. So I guess the question is, how are you thinking about incentives in that forecast? Are you assuming pretty fairly stable levels with what we saw in the first quarter?

Question: John Lovallo - UBS - Analyst : Okay. So you're not assuming any relief from rates or any pullback in incentives is what I was trying to get at. Okay. That's, yes. That's helpful. And then on the lower, some of the lower-priced inventory negatively impacting sales, I'm curious what price points specifically that you were seeing some of that competition? What markets you're referring to? I mean, we've heard from some of the more entry-level focused folks that the inventory at the very low level is still fairly limited. So I'm just curious where you guys were seeing that real competition intensifying.

Question: Trevor Allinson - Wolfe Research - Analyst : Good morning and thank you for taking my questions. First, following up on the geographical question. Thinking about Southern California and Washington DC demand in those markets, Southern California with the wildfires and then DC with the [doge] impact on potential employment there. Have you started to see any impacts to either of those markets, either from the wildfires or just from overall employment uncertainty in DC?

Question: Trevor Allinson - Wolfe Research - Analyst : Okay. Great. It's good to hear. And then second, last fall, we consistently heard of buyers postponing home purchases, expecting rates to come down in 2025. And for your buyer who generally is not battling qualification issues with rates not moving lower here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 1:30PM, TOL.N - Q1 2025 Toll Brothers Inc Earnings Call Are you starting to see a shift where some of those buyers that were maybe waiting before for rates to come down are starting to get back into the market and transact here? And then if not, can you talk about maybe what's holding them back? Is that still an expectation for rates to move lower or anything else to call out? Thanks.

Question: Mike Dahl - RBC Capital Markets - Analyst : Morning, thanks for taking my questions. At the risk of asking you to extrapolate where none of us really want to extract late a day, a week, a few weeks. Given your comments on kind of both the mix, but then than the more recent week. Can you just help level set what, like quantify some level of trends quarter-to-date because typically, you would be up very significantly sequentially in terms of order pace. So how are you stacking up compared to that? What are you thinking in terms of a 2Q kind of pace how you're tracking?

Question: Mike Dahl - RBC Capital Markets - Analyst : Okay. So status quo, 3,000 got it. In terms of then the spec dynamics, Marty, I think you mentioned kind of modest upside to spec margins as a driver for 1Q. Can you give us an update, and I know you've got kind of mix adjusted numbers like-for-like. There's a lot of things that go into the spec spread when you consider which specific loss you're building on. Can you give us an update on kind of where those margin spreads are on the specs versus (inaudible) to order right now?

Question: Michael Rehaut - J.P. Morgan - Analyst : Great, thanks for taking my questions. Good morning, everyone. I just wanted to circle back to your comment of mixed results, and I think there was a question about if those mix results were to continue, how would that affect the rest of the year? And the answer that you gave it was interesting in that it didn't it appeared that your reiteration of full year guidance is, in some ways, I guess, kind of incorporating the current state of mixed results. In other words, kind of reflecting where we are today. So I wanted to know if that kind of my take on that is kind of accurate. And in other words, with maybe the present state where you just described you're maybe raising prices in some communities, raising incentives than others. If that current state again, some of the mix of pricing actions here anticipating in response to that mixed results type of dynamic, if that's all kind of incorporated in your current guide?

Question: Michael Rehaut - J.P. Morgan - Analyst : Right. Okay. That's helpful. And I think important just to obviously stated explicitly.

Question: Michael Rehaut - J.P. Morgan - Analyst : Right. No, that's fair as well. And I guess it was very helpful, Doug, in terms of walking through the dollar percent, the dollars of incentives, 4Q, 1Q and where you stand today, which is pretty impressive, all the, I guess, just to level set that. What was the average incentive in fiscal '24? And I guess, with any kind of forward-looking view on land cost inflation. How are you thinking about land cost inflation this year and perhaps next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 1:30PM, TOL.N - Q1 2025 Toll Brothers Inc Earnings Call

Question: Rafi Jadrosich - Bank of America - Analyst : Hi, good morning, it's Rafe. Thanks for taking my question.

Question: Rafi Jadrosich - Bank of America - Analyst : Just kind of following up on the comment about the kind of current absorption pace and the demand trends have been a little bit more mixed. If we see sort of the absorption pace, kind of stay like this over the intermediate term or over the next few quarters. Do you still think that you'll be able to hold this 27% gross margin range or if the absorption sort of stays at this level, you mentioned that you're not margin proud. Would you kind of push or lean a little bit more into incentives? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 1:30PM, TOL.N - Q1 2025 Toll Brothers Inc Earnings Call

Question: Rafi Jadrosich - Bank of America - Analyst : Thank you. That's helpful. And then just on the SG&A, you called out that it was higher in the first quarter. Some of it just has to do with lower deliveries, but also higher selling expenses. And then you still have deleverage in the second quarter as well, but then leverage in the second half of the year. Can you just talk about what's driving it higher in the first half [because] of where does the leverage come from in the second half and how we think about just SG&A dollar inflation going forward?

Question: Alex Barron - Housing Research Center - Analyst : Yes, thank you. Good morning guys.

Question: Alex Barron - Housing Research Center - Analyst : I wanted to ask about your specs. Are they mainly concentrated in your lower price points? Or are they across all price points?

Question: Alex Barron - Housing Research Center - Analyst : Got it. And in terms of you guys stepping on the brakes, I guess, on new permitting or new specs, I think that makes a lot of sense. Is it your sense that other builders are starting to do that as well? And can you quantify, are you guys just talking about delaying what you've already sort of expect and started? Or are you how can we get our arms around what stepping on the brakes would mean for you?