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    DHI
    Earnings call· Mar 2025(Q2 FY25)

    HORTON D R INC /DE/ DHI

    Apr 17, 2025 Source

    Executive summary

    D.R. Horton Q2 FY25 — Solid Results Amidst Cautious Market and Elevated Incentives

    D.R. Horton delivered solid Q2 FY25 results, navigating a cautious housing market with elevated incentives and a focus on capital efficiency. The company balanced sales pace and price to maximize returns, while significantly increasing share repurchases. Management highlighted its ability to adapt to market conditions and maintain strong returns despite macroeconomic uncertainties.

    Highlights

    5

    • Diluted earnings of $2.58 per share.

    • Homebuilding pretax return on inventory of 24.3% for the LTM ended March 31.

    • Return on equity of 17.4% and return on assets of 12.2% for the LTM ended March 31.

    • Cancellation rate at 16%, down from 18% sequentially.

    • Board approved a new share repurchase authorization totaling $5 billion, with $4 billion planned for FY25.

    Concerns

    5

    • Net sales orders decreased 15% from the prior year to 22,437 homes.

    • Homebuilding revenues decreased 15% to $7.2 billion.

    • Home sales gross margin of 21.8%, down 90 basis points sequentially.

    • Homebuilding SG&A expense as a percentage of revenues was 8.9%, up 170 basis points year-over-year.

    • Average closing price for the quarter was $372,500, down 1% sequentially and year-over-year.

    Guidance & targets

    9
    CategoryTargetConfidence
    Consolidated revenues
    $8.4 billion to $8.9 billion
    high materiality
    High
    Homes closed by homebuilding operations
    22,000 to 22,500 homes
    high materiality
    High
    Home sales gross margin
    21% to 21.5%
    high materiality
    High
    Consolidated pre-tax profit margin
    13.3% to 13.8%
    high materiality
    High
    Consolidated revenues
    approximately $33.3 billion to $34.8 billion
    high materiality
    High
    Homes closed by homebuilding operations
    85,000 to 87,000 homes
    high materiality
    High
    Income tax rate
    approximately 24%
    medium materiality
    High
    Share repurchases
    approximately $4 billion
    high materiality
    High
    Annual dividend payments
    around $500 million
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Homebuilding
    Homebuilding operations saw a decrease in revenues and net sales orders due to a slower spring selling season and cautious homebuyers. Gross margin declined sequentially due to higher incentive costs. The company is focused on capital efficiency, with improved cycle times and a strategic land position.
    Homes closed: 19,276Average closing price: $372,500 (down 1% sequentially and YoY)Net sales orders: 22,437 (down 15% YoY)Order value: $8.4 billion (down 17% YoY)Cancellation rate: 16% (down from 18% sequentially, up from 15% YoY)Average number of active selling communities: up 5% sequentially, up 10% YoYAverage price of net sales orders: $372,500 (flat sequentially, down 2% YoY)SG&A as % of revenues: 8.9% (up 170 bps YoY)Homes started: 20,000Homes in inventory: 36,900Unsold homes in inventory: 23,500Completed unsold homes: 8,400 (down 2,000 from December)Lots owned: 25% of 613,000Lots controlled: 75% of 613,000Investments in lots, land, development: $2 billion ($1.2 billion finished lots, $700 million land development, $100 million land acquisition)
    		$7.2 billion-15%—21.8% gross margin
    Rental Operations
    Rental operations generated pretax income from the sale of single-family and multifamily rental units, operating a merchant build model. The company has been successful monetizing single-family rental communities prior to leasing stabilization for higher returns.
    Single-family rental homes sold: 519Multifamily rental units sold: 300Rental property inventory: $3.1 billion ($813 million single-family, $2.3 billion multifamily)
    		$237 million——$23 million pretax income
    Forestar
    Forestar, D.R. Horton's majority-owned residential lot development company, continues to provide essential finished lots to the homebuilding industry, enhancing D.R. Horton's capital efficiency and operational flexibility.
    Lots sold: 3,411Owned and controlled lot position: 105,900 lotsLiquidity: $790 millionNet debt-to-capital ratio: 29.8%Finished lots purchased by D.R. Horton: $270 million
    		$351 million——$41 million pretax income
    Financial Services
    Financial Services maintained a strong pretax profit margin, supporting D.R. Horton's homebuyers with a high financing capture rate and serving a significant portion of first-time homebuyers.
    Financing for D.R. Horton homebuyers: 81%Average FICO score (DHI mortgage): 723Average loan-to-value ratio (DHI mortgage): 89%First-time homebuyers (DHI mortgage): 63% of closings
    		$213 million——$73 million pretax income, 34.3% pretax profit margin

    Operational metrics

    28
    Consolidated pretax income
    $1.1 billion
    Q2 FY25
    Consolidated revenues
    $7.7 billion
    Q2 FY25
    Consolidated pretax profit margin
    13.8%
    Q2 FY25
    Homebuilding pretax return on inventory
    24.3%
    LTM March 31
    Return on equity
    17.4%
    LTM March 31
    Return on assets
    12.2%
    LTM March 31
    Home sales gross margin
    21.8%down 90 bps sequentially
    Q2 FY25

    Due to higher incentive costs.

    Homebuilding SG&A expense growth
    4%YoY
    Q2 FY25
    Homebuilding SG&A as % of revenues
    8.9%up 170 bps YoY
    Q2 FY25

    Primarily due to expansion of operating platform.

    Employee count growth
    5%YoY
    Q2 FY25
    Market count
    126up 6% YoY
    Q2 FY25

    Across 36 states.

    Construction cycle times improvement
    3 weeksYoY
    Q2 FY25

    Improved from a year ago.

    Lots owned
    153,250
    March 31

    Calculated from 25% of 613,000 total lots.

    Lots controlled
    459,750
    March 31

    Calculated from 75% of 613,000 total lots.

    Homes closed on third-party/Forestar lots
    64%up from 62% YoY
    Q2 FY25
    Consolidated cash provided by operations
    $211 million
    Q2 FY25
    Homebuilding cash provided by operations
    $876 million
    Q2 FY25
    Consolidated liquidity
    $5.8 billion
    March 31
    Debt
    $6.5 billion
    March 31
    Consolidated leverage
    21.1%
    March 31

    Target to maintain around 20% over the long term.

    Stockholders' equity
    $24.3 billion
    March 31
    Book value per share
    $78.82up 9% YoY
    March 31
    Cash dividends paid
    $126 million
    Q2 FY25
    Shares repurchased
    $1.3 billion
    Q2 FY25
    YTD shares repurchased
    $2.4 billion
    FY25 YTD

    Reduced outstanding share count by 7% from prior year.

    Lumber from Canada
    20%
    ongoing

    Percentage of lumber used in homes sourced from Canada.

    Realtor commissions as % of total closings
    2.7%
    Q2 FY25

    Slight decline in closings with a realtor associated.

    Land and lot costs
    up 3%up 10% YoY
    Q2 FY25

    Expected to see further inflation.

    Industry KPIs

    1
    MetricValueDetails
    Segment revenue operating income mixHomebuilding: $7.2B revenue, $1.1B pretax income; Rental Operations: $237M revenue, $23M pretax income; Forestar: $351M revenue, $41M pretax income; Financial Services: $213M revenue, $73M pretax incomeUSD

    Risks & headwinds

    5
    Affordability constraints and declining consumer confidenceQ2 FY25, ongoing

    Net sales orders and homebuilding revenues decreased 15%; home sales gross margin down 90 bps sequentially.

    Mitigation: Increased sales incentives, adjusting product offerings, balancing pace vs. price, focusing on affordable price points.

    Elevated incentive levelsQ3 FY25, ongoing

    Home sales gross margin of 21.8%, down 90 bps sequentially; expected to remain elevated and potentially increase further.

    Mitigation: Adjusting product offerings, managing inventory, utilizing rate buydowns, working with individual buyers to meet their needs.

    SG&A deleverageQ2 FY25

    Homebuilding SG&A expense as a percentage of revenues was 8.9%, up 170 basis points year-over-year.

    Mitigation: Expect leverage to improve with higher volumes in Q3 and Q4; market-level adjustments to overhead and land supply if volume pullbacks are not temporary.

    Tariff uncertainty and potential cost inflationPotential impact on '26 closings

    Not quantified yet, but potential for price increases from suppliers. 20% of lumber from Canada.

    Mitigation: Leverage scale and supplier relationships, adjust product offerings, work with supply partners and vendors to find solutions.

    Land cost inflationOngoing

    Land and lot costs up 3% sequentially, 10% year-over-year. Expect further inflation.

    Mitigation: Adjusting lot takedown schedules, working with developers to extend timing on development phases, maintaining flexibility in lot position.

    What to watch in Q3 FY25

    5

    Home Sales Gross Margin

    Q3 FY25
    Current21.8%
    Target21%-21.5%

    Why it matters

    Key indicator of pricing power and incentive effectiveness in a cautious market.

    We expect our home sales gross margin for the third quarter to be in the range of 21% to 21.5%

    Q&A highlights

    8

    Is sheer size (units sold) still central to the company's identity, or has the focus shifted, particularly given significant share repurchases? What metric should investors focus on?

    Management stated the focus is on a return-based business, balancing pace and price to drive returns and consistent operating cash flows. They believe returns and consistent cash flows are hand-in-hand. While aiming to remain the largest builder long-term, short-term decisions prioritize maximizing returns.

    “We're going to maintain a focus on a return-based business and continue to balance based on that market. We have certainly reached a significant scale, and it continues to be challenging to put new communities in front of us, and we're going to balance our pace and price to drive returns and consistent operating cash flows.”

    asked by Stephen Kim · answered by Paul Romanowski

    2 min read6 chapters

    Detailed Narrative

    01

    Market Conditions and Sales Strategy

    Management noted a slower spring selling season due to affordability constraints and declining consumer confidence, leading to a 15% decrease in net sales orders and homebuilding revenues. The company is balancing pace versus price, increasing sales incentives where necessary, and adjusting product offerings to maintain an attractive value proposition at affordable price points. Weekly sales in March and April outpaced February, and the cancellation rate remains low at 16%.

    02

    Capital Efficiency and Shareholder Returns

    D.R. Horton emphasized its focus on improving capital efficiency, generating substantial operating cash flow, and delivering compelling returns to shareholders. The company's LTM homebuilding pretax return on inventory was 24.3%, return on equity 17.4%, and return on assets 12.2%. They returned all cash generated to shareholders over the past 12 months through repurchases and dividends, and approved a new $5 billion share repurchase authorization, planning $4 billion in FY25.

    03

    Operational Adjustments and Inventory Management

    The company started 20,000 homes in Q2 and ended with 36,900 homes in inventory, with 23,500 unsold. Completed unsold homes decreased by 2,000 sequentially to 8,400. Improved construction cycle times (3 weeks faster YoY) allow for quicker inventory turns and a more nimble response to market demand, enabling operation with fewer overall homes in inventory. Starts are expected to accelerate in Q3.

    04

    Land Strategy and Forestar Contribution

    D.R. Horton's lot position at March 31 consisted of 613,000 lots, with 75% controlled through purchase contracts, enhancing capital efficiency. 64% of Q2 closings were on lots developed by Forestar or third parties. Forestar, the majority-owned lot developer, sold 3,411 lots and generated $41 million in pretax income, providing essential finished lots and supporting D.R. Horton's returns-focused model with $790 million in liquidity.

    05

    Financial Services and Mortgage Operations

    The Financial Services segment earned $73 million of pretax income on $213 million of revenues, with a 34.3% pretax profit margin. The mortgage company financed 81% of homebuyers, with an average FICO score of 723 and 89% LTV. First-time homebuyers represented 63% of closings handled by the mortgage company, highlighting continued demand from this segment.

    06

    SG&A and Operating Platform Expansion

    Homebuilding SG&A as a percentage of revenues increased to 8.9% (up 170 bps YoY) due to investments in expanding the operating platform, including a 5% increase in employee count, 10% increase in community count, and 6% increase in market count (to 126 markets in 36 states). Management expects SG&A leverage to improve over time⏳ with higher volumes, particularly in Q3 and Q4.

    AI-generated summary of the company’s earnings call. Not investment advice.