D.R. Horton (DHI) Q3 2025 Earnings Call Transcript
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What the data shows is What caught my attention is Image source: The Motley Fool. DATETuesday, July 22, 2025, at 8:30 a. EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Paul...
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real estate
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July 22, 2025
03:27 PM
The Motley Fool
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What the data shows is What caught my attention is Image source: The Motley Fool
DATETuesday, July 22, 2025, at 8:30 a
EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Paul RomanowskiExecutive Vice President and Chief Operating Officer — Michael J
Moreover, MurrayExecutive Vice President and Chief Financial Officer — William W
Moreover, WheatVice President, Investor Relations and Communications — Jessica HansenNeed a quote from one of our analysts, in today's financial world. [ tected]RISKSJessica Hansen said, "We expect our sales gross margin to be lower in Q4 FY2025 than in Q3 FY2025. " citing increased incentive costs and variable demand conditions as key drivers
Paul Romanowski stated, "We expect our sales incentives to remain elevated and to increase further during Q4 FY2025," indicating continuing pressure on margins
Bill Wheat noted, "We expect our starts in the fourth quarter to be lower than the third quarter," which may reflect greater inventory caution amid uncertain demand (this bears monitoring)
However, TAKEAWAYSDiluted EPS: $3
Furthermore, 36 per diluted for Q3 FY2025, down from $4 (noteworthy indeed)
Furthermore, Moreover, 10 in the prior year quarter
Consolidated Revenue: $9
However, 2 billion for the third quarter of fiscal 2025, given the current landscape
Sales Gross Margin: 21
Nevertheless, 8% for the third quarter of fiscal 2025, flat sequentially and above guidance, but forecast to decline in the fourth quarter to 21%-21 (noteworthy indeed)
Moreover, S Closed: 23,160, with an average closing price of $369,600, down 1% sequentially and 3% year over year
Net Sales Orders: 23,071 s, flat year over year; order value down 3% to $8, considering recent developments
Cancellation Rate: 17%, up from 16% sequentially, but down from 18% year over year
Building SG&A Expense: Increased 2% year over year to 7
However, 8% of revenues, up 70 basis points
Average Selling Community Count: Up 4% sequentially and 12% year over year; 126 in 36 states
Nevertheless, S Started: 24,700, a 24% sequential increase, but fourth-quarter starts expected to be lower, in today's market environment
Nevertheless, Inventory: 38,400 s in inventory at quarter-end, with 25,000 unsold; 7,300 unsold s, and 800 for more than six months
Cycle Time: Imved by several days sequentially and two weeks year over year; now at three months per
Nevertheless, Lot Position: Apximately 600,000 lots at June 30, with 24% owned and 76% controlled via purchase contracts
Inventory Impairments and Write-Offs: $16 million in impairments and $36 million in option deposit/due diligence write-offs
Moreover, Rental Operations: $55 million pre-tax income on $381 million in revenues from 1,065 single-family and 328 multifamily unit sales
Furthermore, Four Star Results: $391 million revenue, 3,605 lots sold, and $44 million pre-tax income; owns/controls 102,000 lots, in today's financial world
In contrast, Financial Services Segment: $81 million pre-tax income on $228 million revenue, with a 35
Additionally, 7% pre-tax fit margin
Average FICO Score and LTV Ratio: Borrowers averaged a 720 FICO score and 90% loan-to-value; DHI Mortgage financed 81% of buyers, with 64% first-time buyers
SG&A Outlook: Hansen stated, "seven to eight percent, somewhere in that range" is a long-term target for building SG&A as a percent of revenue
Return Metrics: Trailing-twelve-month building pre-tax return on inventory: 22
Furthermore, 1%; return on equity: 16. 1%; return on assets: 11
Additionally, Moreover, 1% for the trailing twelve months June 30, 2025 (this bears monitoring), given current economic conditions
Dividend and Repurchase: $0. 40 per dividend declared for August; $1 (quite telling)
Furthermore, 2 billion spent repurchasing 9 (something worth watching). 7 million s, reducing s outstanding by 9% year over year
Liquidity and Leverage: $5
Additionally, 5 billion in consolidated liquidity at quarter-end; $7, given current economic conditions. 2 billion total debt; leverage at 23. 2% with a long-term target of 20%
Fourth-Quarter Guidance: Revenue between $9, in this volatile climate
Nevertheless, 1 billion and $9
Meanwhile, 6 billion; s closed between 23,500 and 24,000; sales gross margin in the 21%-21
Furthermore, In contrast, 5% range; pre-tax margin of 13. 1% for Q4 FY2025
Full-Year Outlook: Revenues of $33. 7 billion-$34, in today's financial world
Nevertheless, 2 billion; 85,000-85,500 s closed; repurchases planned at $4
Incentives Trend: Incentives were “a bit choppy” but higher to maintain sales pace, per Romanowski
Average Commission for Brokers: Around 270 basis points per closing, consistent with prior periods
Average Square Footage: 1,956 sq, amid market uncertainty
Per closed, down 1% year over year and gradually lower
Moreover, Stick and Brick Costs: Down 2% year over year and 1% sequentially; lot cost up mid-single-digits year over year, but slightly down sequentially
However, Horton (DHI 16. 68%) Management expects sales gross margin to decline in Q4 FY2025 due to higher incentive activity, with incentive levels ly to rise further if market conditions weaken
Capital allocation remained active, with buybacks raised and leverage maintained within targeted ranges to preserve flexibility
Operational efficiency imved in Q3 FY2025, as shown by shorter cycle times and reduced spec inventory
Moreover, Duct strategy supported increased sales to first-time buyers, complemented by expanded smaller offerings, in today's financial world
Management views the current environment as requiring persistent monitoring and adjustment to inventory, incentives, and community count growth entering fiscal 2026
Murray reported, "over 12,000 of our customers were first-time buyers," highlighting a significant mix shift
INDUSTRY GLOSSARYSpec : A built before a sales contract is signed in anticipation of future demand, commonly carried as inventory until sold
Meanwhile, Cycle Time: The interval from start to completion/closing; key for assessing operational efficiency in building
Furthermore, Four Star: D, in today's financial world
Horton’s majority-owned residential lot development company supplying lots for new s
Full Conference Call TranscriptPaul Romanowski: Thank you, Jessica, and good morning, considering recent developments
I'm pleased to also be joined on this call by Michael Murray, our Executive Vice President and Chief Operating Officer, and Bill Wheat, our Executive Vice President and Chief Financial Officer
Horton team exceeded our expectations and dered solid results for the third quarter, highlighted by earnings of $3, in today's market environment
Moreover, 36 per diluted
Moreover, Our consolidated pre-tax income was $1. 4 billion on $9
Conversely, 2 billion of revenues, with a pre-tax fit margin of 14
Meanwhile, Our net sales orders in the third quarter were flat with the prior year quarter and increased 3% sequentially
Conversely, Our tenured operators continue to respond to market conditions with discipline, balancing pace versus price to maximize returns in each of our communities, achieving 23,160 s closed this quarter with a sales gross margin of 21, given the current landscape. 8%, both of which were above our guidance range
Moreover, We remain focused on maximizing capital efficiency to generate substantial operating cash flows and der compelling returns to our holders
Furthermore, Over the past twelve months, we have generated $2. 9 billion of cash from operations, and we have returned $4. 6 billion to holders through repurchases and dividends
For the trailing twelve months June 30, our building pre-tax return on inventory was 22
Moreover, Conversely, 1%, while our consolidated returns on equity and assets were 16. 1%, respectively
Our return on assets ranks in the top 15% of all S&P 500 companies for the past three, five, and ten-year periods, demonstrating that our disciplined returns-focused operating model duces sustainable results and positions us well for continued value creation
New demand continues to be impacted by affordability constraints and cautious consumer sentiment (something worth watching)
Where necessary, we have increased incentives to drive traffic and incremental sales (remarkable data)
Our cancellation rate remains at the low end of our historical range, indicating that buyers in today's market are able to qualify financially and are committed to their purchase
Despite the volatility and uncertainty of the current economic environment, we expect our sales incentives to remain elevated and increase further during the fourth quarter
The extent to which will depend on the strength of demand, changes in mortgage interest rates, and other market conditions (this bears monitoring)
With 54% of our third quarter closings also sold in the same quarter, our sales incentive levels and gross margin are generally representative of current market conditions, in today's market environment
Moreover, We will continue to tailor our duct offerings, utilize sales incentives, and adjust the number of s and inventory based on demand in each of our (noteworthy indeed)
We're well-positioned, offering our customers an attractive value position with quality s at affordable price points, and we have a positive outlook for the housing market over the medium to long term
Michael Murray: Earnings for the third quarter of fiscal 2025 were $3. 36 per diluted compared to $4
Nevertheless, 10 per in the prior year quarter, amid market uncertainty
Moreover, Net income for the quarter was $1 billion on consolidated revenues of $9
Our third quarter sales revenues were $8. 6 billion on 23,160 s closed compared to $9
Nevertheless, 2 billion on 24,155 s closed in the prior year quarter
Additionally, Our average closing price for the quarter was $369,600, down 1% sequentially and down 3% year over year
Bill Wheat: For the third quarter, our net sales orders of 23,071 s were flat with the prior year quarter, while order value decreased 3% to $8, in today's financial world
Our cancellation rate for the quarter was 17%, up from 16% sequentially and down from 18% in the prior year quarter
Our average number of active selling communities was up 4% sequentially and up 12% year over year
Additionally, Conversely, The average price of net sales orders in the third quarter was $365,100, which was down 2% sequentially and down 4% from the prior year quarter
Jessica Hansen: Our gross fit margin on sales revenues in the third quarter was 21
Moreover, 8%, which was flat sequentially and above our expectation (something worth watching)
However, Although our sales gross margin was stable from the second to third quarter, our incentive costs have increased on recent sales, so we expect our sales gross margin to be lower in the fourth quarter compared to the third quarter
Additionally, Our actual incentive levels and sales gross margin for the fourth quarter will be dependent on the strength of demand, changes in mortgage interest rates, and other market conditions
Bill Wheat: In the third quarter, our building SG&A expenses increased 2% from last year, and building SG&A expense as a percentage of revenues was 7 (an important development)
However, 8%, up 70 basis points from the same quarter in the prior year
Our community count is up 12%, and our market count has increased 4% to 126 in 36 states
The investments we have made in our team and platform position us to continue ducing strong returns, cash flow, and market gains while remaining focused on managing our SG&A costs efficiently across our operations
We started 24,700 s in the June quarter, up 24% sequentially from the second quarter, and we expect our starts in the fourth quarter to be lower than the third quarter, in light of current trends
We the quarter with 38,400 s in inventory, of which 25,000 were unsold
Nevertheless, 7,300 of our unsold s at quarter-end were, down 1,100 s from March. 800 of our unsold s have been for greater than six months
For s we closed in the third quarter, our construction cycle times imved several days from the second quarter and apximately two weeks from a year ago
However, Our imved cycle times position us to turn our housing inventory faster
We will continue to manage our s and inventory and start pace based on market conditions
Michael Murray: Our building lot position at June 30 consisted of apximately 600,000 lots, of which 24% were owned, and 76% were controlled through purchase contracts
We're actively managing our investments in lots, land, and development based on current market conditions
During the quarter, our building segment incurred $16 million of inventory impairments and wrote off $36 million of option deposits and due diligence costs related to land and lot purchase contracts
On the other hand, We remain focused on our relationships with land developers across the country to allow us to build more s on lots developed by others, which enhances our capital efficiency, returns, and operational flexibility
Furthermore, In contrast, Of the s we closed this quarter, 66% were on a lot developed by either Four Star or a third party, up from 64% in the prior year quarter, in light of current trends
Moreover, Our third quarter building investments in lots, land, and development totaled $2, in today's market environment. 2 billion, of which $1. 4 billion was for lots, $610 million was for land development, and $140 million was for land acquisition
Paul Romanowski: In the third quarter, our rental operations generated $55 million of pre-tax income on $381 million of revenues from the sale of 1,065 single-family rental s and 328 multifamily rental units
Our rental perty inventory at June 30 was $3, in this volatile climate. 1 billion, which consisted of $2. 5 billion of multifamily rental perties and $668 million of single-family rental perties
We remain focused on imving the capital efficiency and returns of our rental operations
Jessica Hansen: Four Star, our majority-owned residential lot development company, reported revenues for the third quarter of $391 million on 3,605 lots sold with pre-tax income of $44 million
Four Star's owned and controlled lot position at June 30 was 102,000 lots. 63% of Four Star's owned lots are under contract with or subject to a right of first offer to D. $320 million of our lot purchases in the third quarter were from Four Star
Four Star had $790 million of liquidity at quarter-end with a net debt to capital ratio of 28
At the same time, Our strategic relationship with Four Star is a vital component of our returns-focused model (something worth watching)
Four Star's strong separately capitalized balance sheet, substantial operating platform, and lot supply position them well to consistently vide essential lots to the building industry and aggregate significant market
Michael Murray: Financial services pre-tax income for the third quarter was $81 million on $228 million of revenue, resulting in a pre-tax fit margin of 35
During the third quarter, our mortgage company financed 81% of our buyers
Moreover, Nevertheless, Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 720 and an average loan-to-value ratio of 90% (noteworthy indeed), given current economic conditions
On the other hand, First-time buyers represented 64% of the closings handled by our mortgage company this quarter (remarkable data)
Conversely, Bill Wheat: Our capital allocation strategy is disciplined and balanced to support an operating platform that duces compelling returns and substantial operating cash flows, in light of current trends
We have a strong balance sheet with low leverage and healthy liquidity, which vides us with significant financial flexibility to adapt to changing market conditions and opportunities
During the first nine months of the year, building cash vided by operations was $1. 7 billion, and consolidated cash vided by operations was $950 million, amid market uncertainty
As of June 30, we had $5
Nevertheless, 5 billion of consolidated liquidity, consisting of $2. 6 billion of cash and $2
Nevertheless, 9 billion of available capacity on our credit facilities
In May, we issued $500 million of building senior notes due 2030, and in June, we increased the capacity for our building revolving credit facility to $2, in today's market environment
Moreover, Debt at the end of the quarter totaled $7
Nevertheless, 2 billion, with $500 million of building senior notes maturing in the next twelve months
Our consolidated leverage at June 30 was 23. 2%, and we plan to maintain our leverage around 20% over the long term
Nevertheless, At June 30, our stockholders' equity was $24, in this volatile climate. 1 billion, and book value per was.
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