Matthew Bouley

Matthew Bouley asked about Owens Corning's strategy to leverage its contractor pull-through model across other businesses and with home builders, inquiring if this represents a new enhancement and the specific benefits observed in roofing that the company aims to replicate.

Answer

Brian Chambers, Owens Corning's Chair and Chief Executive Officer, highlighted the successful roofing contractor engagement model (training, merchandising, marketing, digital support) as a blueprint. He detailed its application to lumber and building material dealers, resulting in a 38% increase in enrollments in 2025, and its expansion to home builders, creating significant pull-through demand and revenue opportunities for the company's integrated product offerings.

Matthew Bouley asked about Owens Corning's contractor pull-through opportunities, specifically how the company is leveraging its successful roofing model across other businesses like lumber and building material dealers and home builders, and what benefits are expected from replicating this strategy.

Answer

Brian Chambers, Chair and CEO, detailed the expansion of their successful roofing contractor engagement model, which includes training, merchandising, and digital support, to lumber and building material dealers. He reported a 38% increase in dealer enrollments in 2025 and expects continued double-digit growth, creating significant pull-through demand and revenue opportunities. He also mentioned applying a similar integrated product and marketing approach to home builders.

Matthew Bouley asked about the revenue cadence for 2026, specifically if Q1's flattish revenue implies a 4-5% increase for Q2-Q4, and inquired about any positive offsets to the mounting D&A headwind on gross margins in Q2, Q3, and Q4.

Answer

Bryan H. Fairbanks, President and CEO, explained that Q1's inventory strategy avoids excess channel inventory, and the revenue shaping for 2026 is roughly in line with last year's first half versus second half, with the first half slightly lower. Prithvi S. Gandhi, SVP and CFO, clarified that Q1 gross margin is expected to be about 100 basis points below last year's 40.5%. Bryan Fairbanks added that continuous improvement projects and management's focus on driving efficiency will provide opportunities to offset D&A headwinds throughout the year.

Matthew Bouley from Barclays asked about Ferguson's non-residential guidance for low to mid-single-digit growth in 2026, contrasting it with the 10% growth in Q4, and whether there's scope to outperform this guidance given the updated $90 billion TAM for large capital projects. He also inquired about the M&A activity in 2025 being at the lower end of the 1%-3% target and the focus areas for future M&A.

Answer

Kevin Murphy, President and CEO, confirmed that the non-residential market guide assumes continued large capital project strength but also pressure in light commercial. He stated that Ferguson expects to outperform this market guide despite tougher comps, citing building open orders and backlogs. Bill Brundage, CFO, explained that M&A activity in 2025 was lighter due to timing, but the pipeline remains healthy, with 2026 expected to be more active. He highlighted M&A focus areas in HVAC for residential and capabilities like fabrication and valve automation for non-residential.

Matthew Bouley asked about the non-residential guidance for low to mid-single-digit growth in 2026, contrasting it with the 10% growth in Q4, and whether there's scope to outperform this guidance given the updated $90 billion TAM for large capital projects. He also inquired about the drivers behind M&A being at the lower end of the 1%-3% target in 2025 and the focus areas for future M&A investment by customer group.

Answer

Kevin Murphy (President and CEO) explained that the non-residential market guide assumes continued strength in large capital projects but pressure in light commercial/traditional non-res, confirming expectations to outperform this market guide. Regarding M&A, Kevin Murphy noted that while the pipeline remains healthy, the timing of deals can vary, and 2025 was lighter. He expects 2026 to be more active, focusing on HVAC in residential and capabilities like fabrication and valve automation in non-residential.

Matthew Bouley asked about the contribution of data centers and large capital projects to Ferguson's revenue, the timing and momentum of bidding activity, and potential lumpiness in future revenue. He also inquired about the calendar Q4 2025 quarter-to-date results and early market expectations for calendar year 2026.

Answer

CFO Bill Brundage stated that large capital projects represent mid- to high-single-digits percent of total company revenue, with data centers accounting for over 50% of that. He noted a growing pipeline, increased bidding activity, and rising open order volumes, contributing to strong revenue in commercial mechanical and waterworks. CEO Kevin Murphy acknowledged potential lumpiness due to longer project gestation periods but highlighted Ferguson's scale and multi-customer approach as drivers of share gains. Regarding the outlook, Bill Brundage indicated that calendar Q4 2025 growth was tracking around 3% due to new residential and HVAC pressures, aligning with prior expectations. He added that early 2026 market conditions are not expected to differ significantly, with formal guidance to be provided in February.

Matthew Bouley with Barclays inquired about the current contribution and future potential of data centers and large capital projects to Ferguson's revenue, seeking quantification and insights into bidding momentum, timing, and potential lumpiness of revenue. He also asked for an update on calendar Q4 performance and early thoughts on 2026 market conditions, including inflation.

Answer

Bill Brundage, Ferguson's CFO, estimated large capital projects represent mid to high single digits of total revenue, with data centers accounting for over 50% of that. He noted a growing pipeline, increased bidding, and rising open order volumes, particularly benefiting commercial mechanical and waterworks. Kevin Murphy, CEO, added that Ferguson's scale and multi-customer group approach are driving share gains despite potential lumpiness due to longer project gestation periods. Brundage further stated that calendar Q4 growth is tracking around 3%, in line with expectations, and full 2026 guidance will be provided in February, with early 2026 market conditions not expected to differ significantly from year-end 2025.

Matthew Bouley inquired about Ferguson's go-to-market strategy for large capital projects, specifically how the multi-customer group approach (waterworks, commercial PVF, fire protection) is leveraged with various contractors and customers, and sought insights into the data center project pipeline.

Answer

CEO Kevin Murphy detailed that Ferguson goes to market by being best-in-class for individual trade professionals while also engaging engineers, architects, and owners upstream to ensure timely and on-budget project completion. He noted strong growth in commercial mechanical (21%), waterworks (15%), and industrial/fire protection (5%), and confirmed accelerating data center activity across various geographies, with no pauses or cancellations observed.

Matthew Bouley inquired about Ferguson's success with large capital projects, specifically how the multi-customer group approach (waterworks, commercial PVF, fire protection) is leveraged to go to market with various contractors and customers, and the current pipeline for data center projects.

Answer

Kevin Murphy, President, CEO & Director, Ferguson, detailed Ferguson's multi-customer group strategy, emphasizing being a best-in-class provider for individual trade professionals while also engaging with engineers, architects, and owners to ensure timely and on-budget project completion. He highlighted strong growth in waterworks (+15%), commercial mechanical (+21%), industrial, and fire protection. Murphy confirmed accelerating data center construction activity across various geographies, noting no pauses or cancellations, and its positive impact on piping systems, valve automation, fabrication, and virtual design services.

Matthew Bouley asked about Ferguson's broad growth and end market outlook, including cross-currents in new residential, HVAC, non-residential, and inflation, seeking assumptions for price and volume quarter-to-date and going forward. He also inquired about specifics regarding large capital projects, the go-to-market strategy leveraging Ferguson's multi-customer group approach, and the pipeline for data centers.

Answer

Kevin Murphy (CEO) and Bill Brundage (CFO) explained that strong Q4 and full-year growth was driven by key areas like HVAC expansion, Ferguson Home, waterworks diversification, and large capital projects. They anticipate softer growth in the second half of calendar year 2025 due to continued new residential construction weakness, softer RMI, and HVAC affordability issues, while non-residential large capital projects remain resilient. Bill Brundage noted July was strong, August sales per day were up about 5%, and H2 growth is expected to be a touch softer. Kevin Murphy detailed Ferguson's multi-customer group approach for large capital projects, engaging individual contractors and upstream stakeholders (engineers, owners). He highlighted strong growth in waterworks, commercial mechanical, industrial, and fire protection, confirming accelerating data center activity and other large projects in biotechnology, pharma, and water/wastewater treatment.

Matthew Bouley sought specific details on pricing, asking which categories (soft surface, hard surface, commercial, residential) are most confident for price increases in 2026 versus those expected to remain softer. He also asked for a postmortem on tariffs' impact on competitive positioning, looking for specific areas of share wins or improved margins.

Answer

Chairman and CEO Jeff Lorberbaum indicated that price increases, generally in the 3%-5% range, have been announced across most categories, with a focus on higher-value products with less competition. He acknowledged reacting to competitive situations. CFO James Brunk differentiated between tariff-related pricing actions (e.g., LVT and ceramic) and general inflation. Lorberbaum noted benefits from tariffs in areas like ceramic imports from Europe, leading to increased share in higher-value products and improved mix. He also cited benefits in the laminate business due to rising LVT prices and improved service levels helping in difficult markets.

Matthew Bouley followed up on pricing, asking for specific categories (soft surface, hard surface, commercial, residential) where Mohawk is most confident in price increases for 2026 versus those that may remain softer. He also asked for a postmortem on tariffs, inquiring if they have led to specific share wins or better margins due to Mohawk's domestic manufacturing advantage.

Answer

Chairman and CEO Jeff Lorberbaum stated that price increases, generally 3-5%, have been announced across most categories, with a focus on higher-value products, and the company is reacting to competitive situations. CFO James Brunk added that price actions address both specific tariff situations (LVT, ceramic) and general inflation. Jeff Lorberbaum noted benefits in ceramic imports (increased share of higher-value products), laminate benefiting from LVT price increases, and improved service levels helping gain business.

Matthew Bouley inquired about the flow-through of initial tariff-related price increases, the timing of benefits from recently announced additional price increases, and sought quantification of the mitigated or unmitigated tariff headwind, including its impact on Q4 guidance and potential Q1 2026 effects.

Answer

President and COO Paul De Cock confirmed that previously announced price increases are flowing and additional increases (5-10% for tariffs, ~5% for carpet) were announced in Q3, expecting time to reach equilibrium. Chairman and CEO Jeff Lorberbaum stated the average tariff impact is approximately 20% on imported products, an annualized $110 million before mitigations, with benefits from lower freight rates. CFO James Brunk confirmed tariff costs and initial price increase benefits are contemplated in Q3 and Q4 guidance.

Matthew Bouley asked about the Water segment's 0%-2% revenue guidance, specifically whether it implies declining volumes and if share dynamics are a factor, as well as expectations for raw material costs like copper and their impact on margins.

Answer

CEO Nick Fink highlighted improved market outperformance in Water, with strong share gains in brick-and-mortar and with builders, and improved e-commerce performance. He noted modest pricing for 2026, particularly for Moen, due to tariff mitigation efforts. CFO Jon Baksht added that commodity inflation is expected to be roughly $40 million for the company, with just under half impacting the Water segment, primarily due to brass. Matthew Bouley also inquired about the timeline for the $35 million cost savings program, which is not included in the guidance but is expected to reach an annualized run rate by year-end 2026, and when these savings might begin to impact the income statement. CEO Nick Fink stated there is no exact timeline, but the company is working to execute it as quickly as possible, with the full run rate savings expected in 2027.

Matthew Bouley asked for a timeline regarding the $35 million cost savings program, which is not included in the 2026 guidance but is expected to reach an annualized run rate by year-end, and when these savings might begin to impact the income statement.

Answer

Nick Fink, Chief Executive Officer, stated that there is no exact timeline as execution is ongoing, but the company is confident the savings will be realized by the end of 2026, contributing to the full annualized run rate in 2027. Efforts are underway to execute as quickly as possible.

Matthew Bouley asked about Taylor Morrison's long-term view on the mix of business, buyer segments, and geographies, specifically where the entry-level mix is headed and which submarkets the company plans to emphasize or de-emphasize in land investments.

Answer

Chairman and CEO Sheryl Palmer explained that the entry-level buyer mix is expected to decrease slightly, with a refocus on core geographic locations and a departure from fringe or tertiary submarkets. She noted less investment in California, continued bullishness on Florida, Texas, Phoenix, and Colorado. Matthew Bouley also inquired about the spec versus to-be-built mix, current percentages, and the timeline for reaching a 50/50 split. Sheryl Palmer and CFO Curt VanHyfte responded, indicating a recent shift back towards to-be-built sales, driven by consumer desire for personalization. While 50/50 would be ideal, it's unlikely in 2026 as the company works through existing spec inventory.

Matthew Bouley asked about Taylor Morrison's long-term strategy regarding the mix of buyer segments and geographies, specifically inquiring about the future direction of entry-level mix and where the company plans to emphasize or de-emphasize land investments. He also questioned the intention and timeline for shifting the spec versus to-be-built sales mix back towards a more balanced ratio.

Answer

Sheryl Palmer (Chairman and CEO, Taylor Morrison) indicated that the entry-level buyer mix is expected to decrease slightly, with a refocus on core geographic markets and a pullback in California land investment, while remaining bullish on Florida, Texas, Phoenix, and Colorado. Regarding the spec-to-be-built mix, Sheryl Palmer noted a positive shift towards to-be-built sales in January and February, with a 700 basis point gain in share. Curt VanHyfte (CFO, Taylor Morrison) added that achieving a 50/50 mix in 2026 would be challenging due to existing spec inventory, but the company aims for a more balanced approach over time.

Matthew Bouley asked for details on the 'over 100 new communities' planned for next year, including regional and product breakdowns, and the expected expansion and mix shift of the Esplanade brand.

Answer

Chairman and CEO Sheryl Palmer confirmed three new Esplanade communities opening in Q1 next year, including one with golf amenities, aligning with investor day discussions. CFO Curt VanHyfte stated broader details on outlet growth would be provided next quarter.

Matthew Bouley asked for details on the over 100 new communities planned for next year, specifically inquiring about their regional or product breakdown and any anticipated movement in the mix of Esplanade sales.

Answer

Sheryl Palmer, Chairman and CEO, indicated that specific details for 2026 would be provided next quarter but shared that three new Esplanade communities, including one with golf amenities, are scheduled to open in Q1 2026, consistent with investor day discussions. Curt VanHyfte, CFO, added that outlet growth would be broad-based across the country. Matthew Bouley also inquired about the significant SG&A leverage observed, asking if there were one-time factors in Q3 or if this represented a new run-rate level for modeling purposes. Curt VanHyfte, CFO, attributed the improvement to lower payroll-related and commission costs, noting that SG&A is a cultural focus. Sheryl Palmer, Chairman and CEO, highlighted efficiencies from the centralized contracts department and an 800 basis point reduction in broker-related sales through the reservation system in September, contributing to leverage.

Matthew Bouley asked for an update on the Score and Snap and new installation techniques, specifically how the company is incentivizing contractors, and sought clarification on whether Q4 marketing investments were solely due to trade shows and contractor events or also a broader market spend.

Answer

CEO Aaron Erter explained that new installation techniques, part of the Statement Essentials collection, are being rolled out methodically to decrease the differential versus vinyl and help contractors win jobs, supported by a dedicated sales team and local marketing/training. He clarified that Q4 marketing investments were specifically related to trade shows, sales meetings, and contractor events, not a major step-up in broader marketing spend, with some dual expenses expected to be one-time.

Matthew Bouley requested an update on the Score and Snap and other new installation techniques, including contractor efficiency improvements and strategies to incentivize contractor adoption. He also sought clarification on whether the Q4 marketing investments were primarily for trade shows and contractor events or broader market spend.

Answer

CEO Aaron Erter explained that new installation techniques, part of the Statement Essentials Collection, are being methodically rolled out to compete against vinyl, aiming to decrease the cost differential. He noted that the majority of the collection will be rolled out by Q1 FY 2027, supported by a dedicated sales team, local marketing, and training. He clarified that Q4 marketing investments were specifically for trade shows, sales meetings, and contractor events, not a major step-up in broader marketing spend.

Matthew Bouley asked about the impact of commodity inflation, specifically copper, on Masco's plumbing margin expansion in 2026, including the timing of this impact. He also inquired about plumbing pricing, noting a 5% benefit in Q4, and sought clarity on expectations for pricing flow-through in the first half of 2026.

Answer

CFO Richard Westenberg explained that mid-single-digit commodity inflation, particularly copper, was observed in Q4 2025 and is expected for 2026, with a typical six-month lag before impacting the P&L. CEO John Nuti expressed satisfaction with the plumbing team's pricing actions amidst challenges, noting continued market share gains. Richard Westenberg confirmed mid-single-digit plumbing pricing for 2026, with moderation expected year-over-year as the company laps mid-2025 mitigation efforts.

Matthew Bouley asked about the impact of commodity inflation, specifically copper, on Masco's 2026 plumbing margin guidance and the timing of these impacts. He also inquired about plumbing pricing in Q4 2025 and expectations for Q1/H1 2026, including the contribution of January pricing actions.

Answer

CFO Rick Westenberg noted mid-single-digit inflation in the plumbing segment in Q4 2025, with similar expectations for 2026, and highlighted a six-month lag for commodity costs to affect the P&L. CEO John Nuti expressed satisfaction with the plumbing team's pricing strategies and continued market share gains. Rick Westenberg confirmed a 5% pricing benefit in Q4 and anticipated mid-single-digit pricing for full-year 2026, with some moderation in year-over-year comparisons due to lapping prior mitigation efforts.

Matthew Bouley inquired about any unexpected impacts on Q3 plumbing margins beyond the anticipated 145% tariffs, and sought clarification on the drivers behind the performance of the builders' hardware business.

Answer

VP and CFO Rick Westenberg detailed three main drivers for Q3 plumbing margins: tariffs (including a $15 million impact from elevated 145% China tariffs), overall industry softness, and incremental costs (copper, inventory-related reserves). He clarified that new tariffs were primarily a Q4 event. For builders' hardware, Rick Westenberg attributed the performance to general industry softness and a planned shipping process change in Q3, not expecting a significant full-year impact.

Matthew Bouley inquired about the specific drivers behind the Q3 plumbing margins, asking if there were any surprises beyond the anticipated 145% tariffs, such as incremental tariffs or other unexpected costs. He also asked for more details on the builders' hardware business, specifically regarding lower volume, inventory timing, and price elasticity.

Answer

Rick Westenberg, VP and CFO, explained that Q3 plumbing margins were impacted by tariffs (including a $15 million impact from elevated China tariffs), overall industry softness, and incremental costs like higher copper prices and inventory-related reserves. He clarified that new tariffs since Q2 would primarily impact Q4. For builders' hardware, he attributed softness to lower sales across the industry and a planned shipping process change in Q3, which is not expected to significantly impact the full year.

Matthew Bouley inquired about the updated non-residential end market guidance, the drivers behind the overall revenue guidance increase beyond NDS's contribution, and the anticipated impact of recent storms on the fourth quarter's performance.

Answer

Scott Barbour, President and CEO of Advanced Drainage Systems, explained that the revenue increase reflects strong performance in Allied Products and HP Pipe within the non-residential segment, indicating market share gains. He acknowledged that recent storms were disruptive, leading to a wider guidance range for the variable fourth quarter. Bouley also asked about the future pipeline of new products, their current incremental revenue contribution, and the outlook for the next 12-24 months. Barbour highlighted that new products, including active treatment, new tank products, StormTech, Nyloplast, and water quality products, are currently contributing tens of millions of dollars in revenue, with an expectation for accelerated commercialization.

Matthew Bouley inquired about the rationale behind the lowered non-residential end market guidance, questioning if it reflects past performance or new order/backlog trends, especially considering the impact of recent storms on the fourth quarter. He also asked about the future product pipeline and the incremental revenue contribution from new products, given the company's enhanced engineering capabilities and faster market launches in Allied and Infiltrator segments.

Answer

Scott Barbour, President and CEO of Advanced Drainage Systems, clarified that the updated guidance reflects strong performance in allied products and HP pipe within the non-residential segment, indicating market share gains. He noted the guidance range was widened to account for the disruptive impact of recent winter storms. Barbour also highlighted that new products from the engineering center, including active treatment, new tank, StormTech, Nyloplast, and water quality products, are currently contributing tens of millions of dollars in revenue, with anticipation for accelerated commercialization.

Matthew Bouley sought clarification on the second-half guidance, asking if there are actual signs of slowing demand in October/November or if the outlook is purely conservative due to uncertainty. He also asked for more detail on the 9% residential growth, its organic versus inorganic components, and the specific drivers across ADS and Infiltrator, including multifamily activity, allied products, and land development.

Answer

CEO Scott Barbour confirmed the outlook is more conservative due to market friction and the government shutdown, rather than overwhelming current slowdowns, especially given the volatile November-March period. VP of Corporate Strategy and Investor Relations Mike Higgins clarified that residential growth included some contribution from Orenco, but ADS and Infiltrator also saw positive organic growth driven by new products, builder programs, and improved multifamily activity.

Matthew Bouley sought clarification on whether the conservative second-half guidance reflects actual signs of slowing demand in October/November or is primarily driven by a cautious outlook due to market uncertainties like the government shutdown. He also asked for more details on the 9% residential growth, its organic contribution, and the specific drivers across ADS and Infiltrator's residential businesses.

Answer

Scott Barbour (CEO and President) explained that the company is taking a more conservative stance for the second half, sensing market friction that impacts shipment releases, especially during the volatile November-March period. Mike Higgins (VP of Corporate Strategy and Investor Relations) and Scott Barbour (CEO and President) attributed the strong residential growth to new product introductions (tanks, advanced treatment), successful builder programs, and robust multi-family activity, with some contribution from Orenco.

Matthew Bouley inquired about Champion Homes' volumes relative to the broader industry, the outlook for out-the-door sales, and the performance of the community channel, including inventory levels and potential recovery in calendar 2026, following encouraging feedback from the Louisville Home Show.

Answer

Tim Larson (CEO) attributed Champion's stronger volume performance to effective execution, digital investments, agile product evolution, and contributions from captive retail. He noted positive Q4 growth was anticipated. For the community channel, he highlighted close collaboration with partners on demand plans, positive feedback on new products, and a balanced approach to inventory given macro trends.

Matthew Bouley from Barclays asked about Champion Homes' Q3 sales volumes relative to the broader industry, which saw a larger decline, and sought insights into the company's go-forward sales outlook. He also questioned the performance and outlook for the community channel, including customer inventory levels and potential for recovery in calendar 2026, following encouraging feedback from the Louisville Home Show.

Answer

CEO Tim Larson attributed Champion's stronger relative performance to effective team execution, digital investments, agile product evolution, and positive contributions from captive retail stores. He noted that Q4 is expected to show year-over-year growth, driven by attracting consumers from the broader housing market. For the community channel, Mr. Larson confirmed a year-over-year decline as anticipated but highlighted positive feedback on new products from Louisville. He explained that community partners are pacing inventory based on market demand, and while prepared for a stronger spring selling season, the company maintains a balanced approach due to potential market choppiness.

Matthew Bouley followed up on the build-to-rent (BFR) strategy, asking if there's an opportunity for more BFR given the executive order, and inquired about the mix of financing versus other incentives and their responsiveness to interest rate changes.

Answer

Ryan Marshall, President and CEO, reiterated that BFR is not a focus for PulteGroup, regardless of executive order clarifications, due to better capital allocation opportunities elsewhere. Jim Ossowski, Senior VP of Finance, noted that financing incentives have remained consistent for the past 3-4 quarters, with more movement seen in other incentives, primarily discounting on speculative homes.

Matthew Bouley inquired if there's an opportunity for PulteGroup to increase its build-for-rent (BFR) activity given potential executive order clarifications, or if it remains a non-focus due to cyclicality. He also asked about trends in financing incentives versus other incentives and their responsiveness to lower interest rates.

Answer

Jim Zeumer, Head of Investor Relations, stated that BFR is not a focus, regardless of executive order details, as there are better capital allocation opportunities. He clarified that financing incentives have been consistent for the past three to four quarters, while other incentives (primarily discounts on spec homes) have seen more movement, with hopes to reduce them as spec levels decrease.

Matthew Bouley asked about PulteGroup's dialogue with the FHFA and the administration regarding housing policy, seeking insight into actionable solutions for the housing shortage, and also inquired about the company's shift in spec production strategy to run closer to 50% from the previously stated 40%-45% target.

Answer

Ryan Marshall (President and CEO, PulteGroup Inc.) stated that the prepared remarks fully covered the administration dialogue, emphasizing the complexity of the housing shortage rooted in local politics and anti-growth mentalities, requiring a coordinated, long-term effort. Regarding spec production, Mr. Marshall clarified that the goal of aligning starts with sales and maintaining 40%-45% spec inventory remains unchanged. The current 50% is a mathematical outcome of a challenging sales environment leading to fewer to-be-built homes, despite a reduction in the actual number of specs in production, with the focus remaining on built-to-order sales.

Matthey Bouley asked about PulteGroup's dialogue with the administration regarding housing solutions and the company's updated spec production strategy, specifically the shift to running closer to 50% spec production.

Answer

Ryan Marshall, President and CEO, stated that the company's prepared remarks fully cover their stance on housing policy, emphasizing the complexity rooted in local politics. Regarding spec production, Mr. Marshall clarified that the target of 40-45% remains, but a challenging sales environment led to fewer built-to-order homes, resulting in a higher *percentage* of specs despite a reduction in the *number* of specs in production. The focus remains on dirt-to-be-built sales.

Matthew Bouley inquired about early thoughts on 2026 end market trends, specifically municipal, residential stabilization, and non-residential drivers like data centers, and also asked for clarification on gross margin sustainability and the sequential SG&A outlook.

Answer

CEO Mark Witkowski projected strong, steady municipal growth into 2026, a mixed non-residential market with data center strength, and anticipated a residential headwind in early 2026 before a potential release of pent-up demand. CFO Robyn Bradbury confirmed strong gross margin performance driven by private label and execution, expecting continued annual expansion, with Q4 gross margin likely between Q2 and Q3 levels and SG&A decreasing sequentially.

Matthew Bouley followed up on the residential market, seeking insight into its performance in Q1 and Q2 2025, the expected cadence of weakening into the second half, and customer sentiment regarding lot development.

Answer

CEO Mark Witkowski noted that residential performance in Q1 2025 was better than expected, but weakened throughout Q2 and into August. He anticipates a low double-digit decline for the remainder of 2025, attributing it to builders scaling back projects and reduced investments in infrastructure.

Matthew Bouley questioned if the gross margins coming in below guidance (even excluding litigation) signaled a conceptual change in the balance between growth and gross margin, specifically if D.R. Horton is willing to sacrifice some gross margin to drive higher volumes. He also asked about the outlook for flattening or improving lot costs, given sequential inflation, and when such improvements might benefit the company.

Answer

Mike Murray, COO, stated that D.R. Horton continues to respond to market conditions, leveraging an unprecedented level of flexibility with community count and available lots, but clarified they would not operate at a zero profit margin. Paul Romanowski, President and CEO, indicated little shift in overall lot costs over the next 12 months due to portfolio mix, but noted flattening and reductions in development costs for new lots and opportunities to renegotiate land terms. Jessica Hansen, SVP of Communications, highlighted a better opportunity in 2026 to renegotiate stick and brick costs, which are expected to decrease throughout the year.

Matthew Bouley questioned D.R. Horton's gross margin in the context of guiding for growth in a non-growing market, asking if there's a conceptual shift in balancing growth and gross margin, potentially sacrificing margin for higher volumes. He also asked about the outlook for flattening or improving lot costs, given sequential inflation, and when D.R. Horton might benefit from this.

Answer

COO Mike Murray stated that D.R. Horton continues to respond to market conditions daily, leveraging its strong community count and lot portfolio. He emphasized that the company will not operate at a zero profit margin. President and CEO Paul Romanowski expects little overall shift in lot costs over the next 12 months due to portfolio mix, but anticipates flattening or reductions in development costs for new lots. SVP of Communications Jessica Hansen highlighted renegotiating stick and brick costs as a key opportunity for 2026, expecting them to decrease.

Matthew Bouley asked about Lennar's future incentive strategy, specifically whether the company anticipates maintaining rate buydowns as a competitive advantage against the resale market, or if a material pullback is foreseen if mortgage rates drop to 6% or lower. He also requested an update on the cancellations environment, including current trends and Lennar's interpretation of them.

Answer

Stuart Miller, Executive Chairman and Co-CEO, explained that while builders provide lower rates through buydowns, a broader market decline in interest rates unlocks the existing home market, creating a 'flywheel effect' that benefits the entire housing ecosystem. Jon Jaffe, Co-CEO and President, stated that cancellation rates remained 'pretty consistent' from Q2 to Q3, directly tied to community-specific efforts to support customers facing affordability challenges.

Matthew Bouley asked about Lennar's future incentive strategy, specifically whether the company anticipates maintaining mortgage rate buy-downs as a competitive advantage or if a material pullback is foreseen if rates reach 6% or lower. He also requested an update on the cancellation environment trends from Q2 to Q3.

Answer

Executive Chairman & Co-CEO Stuart Miller explained that while builders provide buy-downs, lower market interest rates unlock the broader housing market, creating a 'flywheel effect' that benefits the entire ecosystem. Co-CEO & President Jon Jaffe stated that cancellation rates remained 'pretty consistent' from Q2 through Q3, directly tied to community-specific efforts to support customers facing affordability challenges.

Matthew Bouley followed up on the cancellations environment, asking for an update on trends and Lennar's interpretation of current cancellation rates.

Answer

Jon Jaffe, Co-CEO and President, stated that the cancellation pace remained consistent from Q2 to Q3. He noted that cancellations are directly tied to community-specific efforts to support customers facing affordability challenges.