Toll Brothers, Inc. (NYSE:TOL) CEO Douglas Yearley is expecting the demand for luxury homes to remain robust into 2025 after his high-end construction company posted solid third-quarter results on Tuesday.

"With mortgage rates at their lowest point in a year and trending lower, favorable demographics and continuing balance in the supply and demand of homes for sale, we are optimistic that demand for new homes will remain solid through the end of fiscal '24 and into 2025," he said on Wednesday during a conference call with analysts.

He noted that demand was "uneven" throughout the quarter as May had a strong start that slowed in June, while July saw the highest demand, particularly in the latter half of the month.

"We are encouraged by demand trends we are seeing across the country and also across our buyer segments," he said.

Demand was especially strong in the states of California, New Jersey, Pennsylvania, South Carolina and in the urban areas of Atlanta, Boise, Las Vegas and Metro D.C., he said.

Toll Brothers posted adjusted EPS of $3.60 that exceeded Wall Street consensus of $3.31 and $2.73 billion in revenue that beat the analyst estimate of $2.71 billion.

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But RBC Capital Markets pointed out that Toll Brothers' 11% rise in home orders to 2,490 units from a year ago fell well short of its expectation for a 26% jump in orders and Wall Street's forecast of a 27% increase in orders. Meanwhile, the company's gross margin of 27.6% beat RBC's forecast of 26.4% and Street consensus of 26.3%.

"Net, the miss on orders and beat on GM% were both wider than expected," analyst Mike Dahl wrote in a note.

Wedbush Securities noted that Toll Brothers' orders rose by double-digit percentages in the Midatlantic, South and Mountain regions but fell by single-digit percentages in the North and Pacific regions.

It also pointed out that Toll Brothers' sales absorption rate, which is the ratio of homes sold to homes available in a market during a period, of 2.1 homes per month was below Wedbush's forecast of 2.3 homes per month.

"We expect absorption to decline to 1.9 orders/month in F4Q24 due to normal seasonality," analyst Jay McCanless wrote in a note.

Price Action: Toll Brothers gained 5.62%, to close at $141.03 on Wednesday, along with gains across ETFs in the sector.

• Invesco Dorsey Wright Consumer Cyclicals Momentum ETF (NASDAQ:PEZ) rose 2.33%.
• IShares U.S. Home Construction ETF (BATS:ITB) went up 2.6%.
• IShares Focused Value Factor ETF (NYSE:FOVL) gained 0.52%.
• Themes US Small Cap Cash Flow Champions ETF (NASDFAQ: SMCF) edged up 0.64%.
• SPDR S&P Homebuilders ETF (NYSE:XHB) rose 2.9%.

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