For Toll Brothers, disciplined execution beats market uncertainty

Today’s headwinds new-home market rewards homebuilding teams that do the hardest things the best.

In that light, a glib explanation for Toll Brothers’ Q1 2026 performance would be to point to geography and demographics: a luxury buyer profile, higher incomes and lower sensitivity to mortgage rates.

The harder – and more reality-grounded – explanation is operational, and laser customer focus.

Yes, the company serves a more affluent, less price- and interest-rate-sensitive customer. But the earnings call makes clear that the real edge lies in a system built around disciplined execution, customer personalization and capital-efficient land strategy.

“Our strategy of balancing price and pace worked well,” Chairman and CEO Douglas Yearley said, describing a quarter where Toll signed 2,303 contracts for $2.4 billion and held incentives steady at roughly 8% for the third consecutive quarter.

The company’s leadership team kept the tone grounded. Doug Yearley described the January-to-mid-February pickup as “up modestly” and “too early to be high-fiving.”

That restraint matters. It tells you they’re not underwriting a comeback story. They’re underwriting today’s conditions, and trying to win anyway. They largely did. Q1 deliveries were 1,899 homes. Homebuilding revenue totaled $1.85 billion. EPS was $2.19, up 25% year over year.

The core discipline they pointed to wasn’t a single magic lever. It was mix management, customer experience, production cadence and capital posture, all working in tandem.

That balance – between margin protection and predictable absorption – is no accident. It is engineered and practically woven into the Toll Brothers business culture.

Confidence math vs. affordability math

Toll’s buyers are less constrained by monthly payment calculations – after all, average sales prices clock in at very nearly seven figures. But that doesn’t make them immune to hesitation.

Management repeatedly emphasized that activity – web traffic, physical visits, and deposits – signals that even discretionary buyers remain cautious in a volatile macro environment.

Where entry-level builders must solve affordability math, Toll leans into something that’s easy to say and hard to operationalize: it sells confidence.

Personalization sits at the center of that equation.

“Our ability to customize remains an important competitive advantage,” Karl Mistry said. Design studio upgrades averaged $212,000 – roughly 25% of the base price – reinforcing both margin performance and buyers who are all-in for the journey.

That number isn’t just a margin tailwind. It’s a commitment mechanism. Toll tied its exceptionally low cancellation rate – 2.8% – to buyers being “emotionally invested” as they personalize their homes. In a market where traffic can rise and fall with headlines, emotional investment is one of the few things that reliably reduces churn.

That’s a strategic advantage disguised as a customer experience detail. Many builders can offer options. Fewer can run a high-throughput personalization system that customers value, sales teams can sell and construction teams can deliver with cycle times customers can rely on.

Predictable execution, rinse and repeat

Toll’s quarter underscores something many builders struggle to replicate: predictable execution across a mixed delivery model.

The company runs a roughly 50-50 balance between build-to-order homes — which carry higher margins — and spec homes that turn faster and smooth revenue flow.

“We believe we have achieved the right balance,” Mistry said, noting that Toll would “lean into build-to-order if the market softened,” a decision framework that protects margin when uncertainty rises.

That combination explains why Toll continues to deliver gross margins in the mid-20s even as broader industry pricing power fluctuates (i.e. many are flirting with negative net margins as they work through aging standing inventories in some markets).

Production discipline is still a weapon

In this market, the homebuilders who can keep cycle times predictable have a real advantage. Not because speed alone is the goal, but because it reduces the number of “unknown unknowns” that destroy margins and customer trust.

Toll reported build-to-order cycle times of about 9.5 months, with spec homes about a month shorter. They also said build costs were flat quarter over quarter. Yearley noted they’re seeing “a little bit of downward pressure” on costs, though small, and that lumber is “a little bit of a headwind” right now.

Read that as: no miracle cost collapse, no rose-tinted glasses assumptions. Steady execution, scale leverage and a cost posture that doesn’t require wishful thinking.

Even on incentives, Toll’s message was careful. Incentives held flat at about 8% of sales price for a third straight quarter. That will raise eyebrows among builders who’ve been leaning harder on buydowns and sweeteners to keep pace. Toll’s explanation was basically, we moved some finished specs with a bit more incentive, offset it with lower incentives in build-to-order, and held the line overall while still beating margin.

That’s a signal that they’re using incentives as a calibrated tool, not a panic button.

Land strategy: the optionality edge

An underappreciated signal in the call is Toll’s land posture.

They emphasized “option arrangements, land banks, joint ventures and similar structures that allow us to defer payments and lot takedowns.”

That’s the operational version of optionality: keep dry powder, keep flexibility, keep the ability to pivot by market and product without loading the balance sheet with fixed exposure at the wrong point in the cycle.

Then Yearley added an underappreciated point: at the $1 million-plus end of the market, “there are fewer and fewer builders that have capital and the desire” to compete. That’s not just commentary. That’s a description of a shrinking competitive set, which often becomes a stable foundation for market-share gains over time.

In the Q&A, they also described increased opportunity to structure land deals with seller financing. In a market where some sellers are more motivated, the best-capitalized operators can often secure better terms, better locations, and better timing.

Put those together and you get a simple strategic truth: Toll’s land strategy is designed to make it harder for the next-best competitor to keep up.

The repeatable operating model, fully spelled out

So what is Toll’s “repeatable operating model” in plain English?

Sell confidence, not just product. Personalization isn’t marketing fluff; it’s conversion, margin, and cancellation control.

Use mix as a steering wheel. Build-to-order protects margin; specs protect turns; early spec sales preserve the personalization upside; pull back specs if demand softens.

Keep production predictable. Cycle times and cost discipline support both customer trust and margin stability.

Keep the balance sheet ready. Optioned lots, structured land deals, strong liquidity, and low net debt create flexibility—and leverage when others are constrained.

Stay sober about the market. “Up modestly” is the right language when the cycle is still fragile.

That’s why Toll’s quarter reads less like “luxury is back” and more like “the system works.”

Informed conjecture: Why could Toll be a serious acquirer?

Now, in light of the acknowledgment that 2026 may offer better-than-even odds for one or two more blockbuster – even public-to-public – mergers and acquisitions combinations in the months ahead, does this set Toll up for a step-change move, potentially through M&A?

Toll’s financial posture is clearly strong. They ended Q1 with about $3.4 billion of liquidity, including $1.2 billion of cash, and a net debt-to-capital ratio of 14.2%. They emphasized “ample liquidity, low net debt and a strong investment-grade credit rating.” They extended key facility maturities to 2031. They also expect “significant cash flow generation” and plan to repurchase $650 million in stock this year, most likely later, as cash flows rise.

Those are not the statements of a company worried about its own footing.

At the same time, they’re in the middle of a leadership transition. Yearley moves to Executive Chairman in late March; Karl Mistry steps in as CEO. Transitions like that can cut two ways: sometimes they slow big moves while the new leader settles in; sometimes they create a window to define “phase two” with a decisive play.

The other clue is portfolio focus. Toll is in the process of exiting multifamily development over the next several years. They just monetized part of the Apartment Living portfolio, with proceeds of around $330 million. That reads like simplification and focus – freeing capital and attention for core homebuilding, land, and customer experience.

So what kind of acquisition would actually fit Toll’s system?

Not a sprawling roll-up that drags in misaligned product, messy land books, or weaker execution. Toll’s edge is its operating model. The wrong deal would dilute it.

A plausible thesis is targeted acquisition of a high-quality, regionally strong operator in a market where Toll already sees a structural advantage – especially where local land access and entitlement expertise are the real bottlenecks. Think: a builder/developer with deep infill capability, or an operator with strong positions in high-demand corridors where Toll can plug in its design studio model, purchasing scale, and capital structures.

In other words, a combination that creates distribution for Toll’s system, not just more units.

Why might that work?

Because Toll’s model is unusually portable, it can be applied to an acquired business with the right land pipeline and local execution culture. Toll doesn’t need to buy “growth.” It more likely, and historically tends to buy platform – land positions, entitlement talent, local relationships – then apply its playbook: personalization, margin discipline, pacing, and structured capital.

And because the luxury competitive set is smaller, the right acquisition could shift Toll’s share meaningfully without turning the company into something it isn’t.

That’s the sober version of the “market domination” idea: not conquest, not hype – just a builder with strong systems, strong capital posture, and a narrowing competitive set using a well-chosen deal to widen the gap.

If Toll chooses to do it, the most telling sign will be whether the deal clearly strengthens one of Toll’s existing advantages: land access in desirable locations, ability to scale personalization or ability to control pace without sacrificing margin integrity.

You and I can probably think of at least one or two potential combinations that sync with that opportunity.