Homebuilding company Toll Brothers (NYSE: TOL) announced better-than-expected revenue in Q1 CY2026, but sales fell by 7.6% year on year to $2.53 billion. Its GAAP profit of $2.72 per share was 5.6% above analysts’ consensus estimates.

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Karl K. Mistry, chief executive officer, stated: “In the second quarter, we once again successfully navigated a challenging market and produced strong results. We delivered 2,491 homes at an average price of $1,009,000 in the quarter, generating $2.5 billion of home sales revenues, or approximately $110 million above the midpoint of our guidance. Our adjusted gross margin was 26.2%, or 70 basis points above guidance, and our SG&A expense, as a percentage of home sales revenues, was 10.3% or 40 basis points better than guidance. In addition, orders were up 7% in units and 8% in dollars year-over-year. Based on our year-to-date performance, we are raising our full year guidance across all key home building metrics.

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

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Toll Brothers grew its sales at a decent 7.5% compounded annual growth rate. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Toll Brothers’s recent performance shows its demand has slowed as its annualized revenue growth of 2.6% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Toll Brothers’s backlog reached $6.32 billion in the latest quarter and averaged 9.1% 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’s revenue fell by 7.6% year on year to $2.53 billion but beat Wall Street’s estimates by 4.6%.

Looking ahead, sell-side analysts expect revenue to decline by 3.3% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

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Operating Margin

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 16.5%. 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 2.5 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion was impressive, especially when considering most Home Builders peers saw their margins plummet.

This quarter, Toll Brothers generated an operating margin profit margin of 13.7%, down 3.1 percentage points year on year. Since Toll Brothers’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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 25.7% compounded annual growth rate over the last five years, higher than its 7.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Toll Brothers’s earnings can give us a better understanding of its performance. As we mentioned earlier, Toll Brothers’s operating margin declined this quarter but expanded by 2.5 percentage points over the last five years. Its share count also shrank by 24%, 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 shorter period to see if we are missing a change in the business.

For Toll Brothers, its two-year annual EPS declines of 5% mark a reversal from its (seemingly) healthy five-year trend. We hope Toll Brothers can return to earnings growth in the future.

In Q1, Toll Brothers reported EPS of $2.72, down from $3.50 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.6%. Over the next 12 months, Wall Street expects Toll Brothers’s full-year EPS to stay about the same, moving from $13.22 to $13.16.

Key Takeaways from Toll Brothers’s Q1 Results

We were impressed by how significantly Toll Brothers blew past analysts’ revenue expectations this quarter. We were also glad its adjusted operating income outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $125.50 immediately following the results.

Indeed, Toll Brothers had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).