D.R. Horton (DHI) Q2 FY26 earnings call: guidance and Q&A

Home sales gross margin was 20.1%, including a 40 basis point benefit from a favorable litigation outcome and lower-than-normal warranty costs; normalized, margin was 19.7%, slightly above the guidance range. Management attributed the beat to a combination of stick-and-brick reductions (materials and labor), a strong demand quarter that let them hold incentives a bit more than anticipated (just under 25,000 homes sold), and disciplined selling.

Sequentially, home sales revenue and stick-and-brick costs were both down 2% per square foot with lot costs flat; year-over-year, revenue and stick-and-brick were down 4% per square foot while lot costs rose 4%. Management sees incremental construction-cost savings flowing through Q3 and Q4.

Management characterized March demand as good and in line with normal seasonality, with results through mid-April also pleasing, though only mid-month. The cancellation rate was stable throughout the quarter at 16% and cancellations continue to stem mainly from buyers failing to qualify for a mortgage in full documentation.

Management said it saw no meaningful disruption tied to global events or gas-price increases despite elevated consumer-sentiment volatility. Regionally, Texas and Florida demand felt good but are 'not quite the powerhouses they once were,' with the North region contributing strongly on prior-year investments; some softness appeared in markets with heavy software-industry exposure.

Sales incentives run roughly 10% of revenue, with the mortgage-rate buydown the most significant component; management expects incentives to stay elevated and needs rates to moderate or consumer confidence to improve before they ease. About 90% of buyers using the captive mortgage company took some form of permanent and/or temporary buydown, equating to roughly 73% of overall closings.

ARM product was about 10% of mortgage-company closings, down from 13% sequentially but up from essentially zero a year ago; management expects ARMs to bounce in a 10%-15% range and sees no material margin impact. Incentives are managed community by community, and selling earlier in the construction process lets Horton hold back some incentives.

Horton started 27,500 homes and ended the quarter with 38,200 homes in inventory (22,900 unsold, 5,500 completed and unsold). Completed unsold homes fell 25% from December and 35% year-over-year, with both unsold-as-a-percentage-of-total-inventory and completed-unsold inventory at their lowest levels since fiscal 2023.

Median cycle time from start to close improved almost a month year-over-year and complete-to-close fell about a week sequentially, letting the company hold less inventory and turn homes faster. About 61% of homes closed in the quarter were sold within the quarter.

Management expects Q3 starts lower than Q2, roughly flat with the prior-year Q3.

The homebuilding lot position at March 31 was approximately 575,000 lots, 23% owned and 77% controlled through purchase contracts; the lot count is down about 10% year-over-year. In Q2, 67% of homes closed were on lots developed by Forestar or third parties, up from 64% a year ago.

Land-banker exposure is only mid-single-digit of the lot portfolio; most lots are held by third-party developers, giving Horton flexibility to adjust takedown schedules and pass on deals that don't underwrite in the current incentive environment. Homebuilding investments in lots, land and development totaled $2.1B ($1.5B finished lots, $500M land development, $120M land acquisition).

Forestar reported $374M revenue on 2,938 lots sold and $44M pretax income, with a 94,000-lot owned/controlled position.

Over the trailing 12 months Horton generated $3.7B of cash from operations and returned $4B to shareholders through repurchases and dividends. In Q2 it repurchased 6 million shares for $904M, cutting the share count 8% year-over-year, and paid $0.45 per share in dividends ($130M).

Book value per share rose 5% year-over-year to $82.91 even as stockholders' equity slipped 3% to $23.6B. Consolidated liquidity was $6B against $6.6B total debt and 21.7% leverage (long-term target ~20%), with $600M of homebuilding senior notes maturing over the next 12 months.

Policy is to distribute roughly 90%-100% of operating cash flow, with buybacks the variable lever and a strong reluctance to cut the dividend.

Rental operations generated $12M of pretax income on $212M of revenue from the sale of 566 single-family rental homes and 216 multifamily units; rental property inventory was $3B ($2.7B multifamily, $347M single-family) and is expected to stay near $3B. Management noted build-for-rent (BFR) legislative uncertainty around a potential 7-year sale requirement is causing a demand pause, but Horton underwrites BFR communities as for-sale and focuses forward BFR business on pre-contracted forward sales, limiting reliance.

Financial services delivered $52M of pretax income on $193M of revenue, a 26.8% pretax margin, with 65% of mortgage-company closings to first-time homebuyers.

Full-year FY26 closings guidance was cut by 500 homes to 86,000-87,500 and top-end revenue guidance trimmed to $33.5B-$34.5B, reflecting Q1 and Q2 closings below plan and a lighter ASP assumption with no ASP increase modeled in the back half. Horton's average closing price of $361,600 sits roughly $160,000 (about 30%) below the average U.S. new-home price and its median about $70,000 below the median existing home, underscoring its affordability focus.

Management is pushing more affordable product where lot sizes and minimum-square-footage rules allow — for example communities priced in the high $100s to low $200s in Texas markets like San Antonio — and reports above-average sales pace at those price points.