Mike Dahl

Mike Dahl from RBC Capital Markets sought clarification on whether tariff mitigation aims to offset costs on a dollar-for-dollar basis or to protect margin percentages. He also asked what is driving Masco's e-commerce outperformance against a choppy backdrop for peers.

Answer

CFO Rick Westenberg clarified that the goal for 2025 is to offset the nominal, dollar-for-dollar impact of enacted tariffs. CEO John Nudi attributed the e-commerce strength, particularly at Delta Faucet, to sustained investment in talent and capabilities, allowing them to lead in areas like search and adapt to new technologies like AI.

Mike Dahl followed up on the starts and inventory dynamic, noting D.R. Horton's significant inventory reduction but also the need to ramp starts. He asked if this implies ramping up spec homes and about the company's comfort level with increasing specs into Q1 given current market conditions. He also inquired about the expected contribution from the recent acquisition of SK Builders in South Carolina and D.R. Horton's broader view on the M&A and bolt-on landscape.

Answer

Paul Romanowski, President and CEO, stated that D.R. Horton's preferred path is to sell homes earlier and build more backlog, but an increase in starts (both specs and sold homes) will be necessary. He emphasized that improved build speed means they don't need to carry as many total specs and will manage spec count to market sales. Mike Murray, COO, highlighted that the SK Builders acquisition enhances their position in Greenville, South Carolina, adding inventory and controlled lots, and is a creative tuck-in opportunity that leverages D.R. Horton's platform. Jessica Hansen, SVP of Communications, clarified that the SK transaction occurred in October, subsequent to year-end.

Mike Dahl followed up on starts and inventory dynamics, asking about D.R. Horton's comfort level in ramping up spec starts into Q1, given significant inventory reduction but the need to increase starts to meet the annual guide, absent market improvement. He also inquired about the expected contribution from the SK Builders acquisition in South Carolina and D.R. Horton's broader view on the M&A and bolt-on landscape.

Answer

President and CEO Paul Romanowski stated that the preferred path is to sell homes earlier, but an increase in starts (both specs and sold homes) is necessary. He expressed comfort with the current spec count due to faster build times and the ability to manage to market conditions. COO Mike Murray explained that the SK Builders acquisition enhances D.R. Horton's position in Greenville, SC, adding inventory and lots, and leveraging the operating platform. He noted continued interest in tuck-in opportunities to accelerate delivery and benefit from local expertise. SVP of Communications Jessica Hansen clarified that SK Builders was an October transaction.

Mike Dahl from RBC Capital Markets asked for an outlook on construction costs and labor availability for the next year, considering potential tariff and labor market dynamics. He also requested insight into the rental segment's Q3 results and the outlook for the next couple of quarters.

Answer

President and CEO Paul Romanowski stated that labor is plentiful, which is aiding cycle times, and he expects continued reductions in stick and brick costs through efficiency gains. EVP and CFO Bill Wheat noted that while rental revenues may remain stable, margins on rental property sales are expected to be lower in Q4 due to the higher interest rate environment.

Mike Dahl of RBC Capital Markets asked for the company's outlook on construction costs for the next year, considering potential tariffs and labor dynamics. He also inquired about the performance of the rental segment and its outlook for the next few quarters.

Answer

President and CEO Paul Romanowski stated that labor is plentiful and he expects continued reductions in stick and brick costs due to operational efficiencies. On the rental segment, EVP & CFO Bill Wheat noted the market is in transition and that he expects lower margins on rental sales in Q4, even if revenues remain stable.

Mike Dahl of RBC Capital Markets asked for an explanation of the drivers behind the year-over-year decline in pretax margin guidance, which appeared steeper than the gross margin decline. He also questioned if the company's return focus is shifting its bias between price and pace.

Answer

CFO Bill Wheat identified lower margins in the rental segment as the primary driver of the pretax margin decline beyond the homebuilding gross margin change, citing capital market uncertainty. COO Michael Murray reiterated that the balance between price and pace is a community-by-community decision made by local operators to maximize returns, describing it as more of an art than a science without a corporate-level mandate on pace or margin.

Mikel Dahl (via Chris) asked for Tri Pointe Homes' initial thoughts on the administration's affordable housing push, including opportunities and risks, and the key factors contributing to the sequential step down in Q4 gross margin.

Answer

CEO Doug Bauer welcomed the administration's goal of increasing housing supply, acknowledging the industry's underbuilt status, and expressed willingness to collaborate with stakeholders. He affirmed Tri Pointe's commitment to contributing through its 32,000 lots and anticipated community count growth. CFO Glenn Keeler attributed the Q4 gross margin step-down primarily to a mix shift and increased incentives, particularly for spec homes needing to close within the quarter, rather than changes in sticks and bricks costs.

Mike Dahl followed up on the pace versus price discussion, asking about the threshold for action given the 2.5 per month absorption rate is at the low end of the desired range. He also sought clarification on whether the midpoint of the Q4 gross margin guidance is a reasonable expectation.

Answer

CEO Douglas Bauer maintained the focus on price over pace, stating that demand is inelastic and throwing money at it won't help, suggesting 2.5 is a good number for the back half. CFO Glenn Keeler confirmed that the midpoint of the gross margin guidance range is a reasonable expectation and is what the company is driving towards, despite the number of homes still needing to be sold.

Mike Dahl asked for more details on Taylor Morrison's 'innovative and compelling' incentives, seeking clarification on whether these included teaser rates, adjustable-rate mortgages, or other proprietary programs designed to motivate buyers.

Answer

Sheryl Palmer, Chairman and CEO, explained that incentives include a combination of conventional and FHA buydowns, adjustable loans, and new proprietary programs like a nine-month forward lock with float-down options for to-be-built homes. She emphasized personalizing incentives to meet individual customer needs, whether for closing costs, short-term ownership, or long-term fixed rates. Mike Dahl also inquired about the 2026 outlook, specifically how Taylor Morrison plans to address a nearly 40% year-over-year decline in backlog while aiming for flat revenues, considering community count growth and spec home strategy. Sheryl Palmer highlighted increased production flexibility due to reduced cycle times, the ability to add new to-be-built homes, and a platform to ramp up starts if market demand supports it, while maintaining a community-by-community approach to balance profitability and volume.

Mike Dahl sought clarification on Taylor Morrison's 'innovative and compelling incentives,' asking about specific new programs beyond traditional rate buydowns, such as teaser rates or proprietary loans.

Answer

Chairman and CEO Sheryl Palmer detailed a range of incentives, including conventional/FHA buydowns, adjustable loans, and a new proprietary nine-month program for to-be-built homes with forward lock and float-down options. She emphasized tailoring offers to individual customer needs.

Mike Dahl asked about sales pace trends observed in July and whether the significant year-over-year decline in the order's average selling price (ASP) was expected to stabilize.

Answer

CEO Sheryl Palmer noted a slow start to July due to the holiday but a subsequent pickup in activity. She attributed the lower ASP primarily to mix shifts, including higher spec penetration targeting first-time buyers, strong townhome sales in Sarasota, and a full quarter of contribution from the lower-priced Indianapolis market.

Mike Dahl asked about the trajectory of incentives, specifically how incentives on orders trended through Q3 and the level embedded in the Q4 gross margin guide. He also inquired about the baseline for gross margins beyond Q4, considering stable incentives and a 50% spec mix into 2026, and potential tariff impacts.

Answer

David Carrier (SVP of Finance, PulteGroup Inc.) noted that incentives were fairly consistent throughout Q3. For Q4, the guide assumes moving spec inventory, but he did not provide more granular detail on the specific incentive level embedded. Ryan Marshall (President and CEO, PulteGroup Inc.) declined to provide guidance beyond Q4, stating that full 2026 guidance would be given after the next quarter's earnings call.

Mike Dahl inquired about the trajectory of incentives, order trends, and the specific level of incentives embedded in the Q4 gross margin guide, as well as a potential baseline for 2026 gross margins.

Answer

David Carrier, Senior Vice President of Finance, noted that incentives were fairly consistent throughout Q3. The Q4 gross margin guide incorporates assumptions about selling and closing approximately 1,000 homes, including moving spec inventory. Ryan Marshall, President and CEO, deferred providing 2026 guidance until the Q4 earnings call.

Mike Dahl of RBC Capital Markets asked about any potential impact from ICE-related labor market dynamics on PulteGroup's job sites. He also requested a breakdown of the drivers behind the 5% sequential decline in order ASP, separating mix effects from like-for-like pricing changes.

Answer

President & CEO Ryan Marshall stated that PulteGroup has always required all labor to be legally eligible to work in the U.S. and that any broader labor force disruptions would not be specific to construction. EVP & CFO James Ossowski attributed the lower order ASP to a combination of geographic and product mix, particularly softness in higher-priced move-up segments in California, as well as the impact of incentives.

Mike Dahl asked for more specific details on recent demand dynamics, including the monthly sales pace cadence through Q3 and into September, given the normal seasonal ebb. He also questioned the timing of the shift back to built-to-order (BTO), its reliance on a demand inflection next year, potential revenue gaps, and the company's pivot strategy if mortgage rates do not provide the expected relief.

Answer

Jeff Mezger, Chairman and Chief Executive Officer, confirmed that demand was consistent through Q3, with June being the strongest month, and no significant shift observed in the first two weeks of September. Regarding the BTO shift, Mezger explained that while backlog will be down, it's proportional to reduced build times, positioning for similar pull-throughs. He emphasized that the spring selling season is crucial for the year's performance and that the BTO transition is ongoing, not an immediate switch. He expressed confidence in consistent performance and did not anticipate a 'trough,' noting that rotating out of aged inventory allows a focus on core BTO value.

Mike Dahl requested more specific details on KB Home's monthly sales pace cadence, including September, given comments about steady demand and no significant uptick in Q4 to date. He also asked about the timing of the shift to built-to-order, its reliance on a demand inflection in 2026, and the company's strategy if mortgage rates do not come down as anticipated.

Answer

Jeff Mezger, Chairman and Chief Executive Officer, stated that Q3 demand was consistent, with June being the best month, and July and August close behind. He noted that September (first two weeks) was 'more of the same.' Regarding the BTO shift, Mezger explained that while backlog will be down, reduced build times position them for similar pull-throughs. He emphasized that the shift isn't instant, as aged inventory creates internal competition. He expects consistent performance, with the spring selling season dictating the second half of 2026. If rates don't drop, the company will continue to focus on its core value proposition and BTO model.

Mike Dahl inquired about Ferguson's capital allocation strategy, specifically what would prompt a more aggressive deployment of capital towards the midpoint or upper end of their leverage range, and whether this would primarily be driven by M&A or increased share buybacks.

Answer

CFO Bill Brundage stated that Ferguson aims to operate at the low end of its 1-2x net debt to EBITDA leverage range, maintaining a strong balance sheet for optionality. He indicated that scaling up would occur for strong organic growth opportunities or M&A, but currently, there are no large M&A deals in the pipeline.

Mike Dahl inquired about Ferguson's balance sheet and capital allocation strategy, noting its conservative management at the low end of the target range. He asked what conditions would prompt a more aggressive deployment of capital towards the midpoint or upper end of the leverage range, and whether this would likely come through increased M&A or share buybacks.

Answer

Kevin Murphy, President, CEO & Director, Ferguson, reiterated the company's consistent capital allocation strategy, prioritizing a strong balance sheet for optionality and aiming to operate at the low end of the 1-2x net debt to EBITDA range. He stated that scaling up capital deployment would occur for compelling organic growth opportunities or, more likely in the near term, for M&A opportunities. Murphy noted that while there are no large acquisitions currently in the pipeline, the company maintains balance sheet flexibility to act on such opportunities if they arise.

Mike Dahl asked for a deeper dive into HVAC performance, considering OEM concerns about sharper near-term declines, and how Ferguson's guide embeds HVAC growth in the second half, particularly regarding volume pressure versus potential price mix improvements. He also inquired about Ferguson's balance sheet and capital allocation strategy, specifically what it would take to deploy capital more aggressively towards the midpoint or upper end of the leverage range, and whether this would be through increased M&A or buybacks.

Answer

Kevin Murphy (CEO) reiterated low single-digit price in HVAC for Q4, expecting equipment price to increase with the 410A to A2L transition, but noted the repair-to-replace mix muted overall inflation. He highlighted bifurcated performance (strong East/Midwest vs. challenging West) and acknowledged pressure from new residential construction and consumer affordability. He confirmed that the guide embeds some HVAC softness in the near term, with August HVAC sales down a touch (low single digits), and anticipates tougher comparables. Bill Brundage (CFO) stated Ferguson aims to operate at the low end of the 1x-2x net debt to EBITDA leverage range, valuing a strong balance sheet for growth investments. He indicated that scaling up would occur for strong organic growth opportunities or M&A, but noted nothing large in the pipeline currently, confirming balance sheet flexibility for M&A.

Mike Dahl questioned the competitive dynamics, asking how Ferguson successfully gained market share while also expanding gross margins, a reversal of the trade-off discussed last quarter. He also asked if this was achieved via centralized bidding controls.

Answer

CEO Kevin Murphy responded that while the market remains competitive, the success was driven by sales management executing a product strategy, supported by centrally-driven data and tools, not centralized control. He confirmed that while there was some benefit from pricing on older inventory, the majority of the margin improvement came from these strategic actions.

Steven, on behalf of Mike Dahl, asked for a reminder of Ferguson's international cost exposures and how the company's strategy for managing potential tariffs has evolved, particularly in light of recent political changes.

Answer

CEO Kevin Murphy explained that Ferguson sources from over 37,000 suppliers across more than 30 countries for its own-brand products, having already mitigated much of its China exposure. For the 90% of its business in branded products, the company works with a wide variety of manufacturers and will adjust its strategy based on price and value. Murphy expressed confidence in the company's ability to pass through price changes, suggesting that tariffs could even be helpful by creating a degree of price inflation.

Mike Dahl sought more specific details on what SG&A costs came in worse than expected and how cost actions are segmented between headcount and fleet/infrastructure, and asked for a better sense of pricing trends, including commodity side movements through Q2 into Q3, and the dynamics between finished goods and commodity pricing.

Answer

Robyn Bradbury (CFO) detailed SG&A increases, attributing them to M&A, one-time items (retention, severance), a surge in medical claims, volume-related growth, inflation in facilities, fleet, and medical, higher incentive compensation, and equity-based compensation. She noted that headcount has been managed well. Mark Witkowski (CEO) confirmed neutral pricing, with increases in non-pipe products (due to tariffs) offsetting moderation in larger diameter PVC pipe, expecting overall stability.

Mike Dahl asked for more detail on pricing, specifically how commodity trends evolved through Q2 into Q3 2025, and the current dynamics between finished goods and commodity pricing.

Answer

CEO Mark Witkowski confirmed neutral pricing for the quarter, noting increases in non-pipe related products (some due to tariffs) offset moderation in larger diameter water PVC pipe pricing. He expects this stability to continue.

Mike Dahl sought more detail on pricing, asking about the breadth and magnitude of non-commodity price increases from vendors and the expected sequential cadence for gross margins. He also asked about the company's strategy for greenfield expansion.

Answer

CEO Mark Witkowski stated that the company is working to pass through potential tariff-related price increases, which should support gross margins. Regarding expansion, he emphasized that greenfields are a key lever alongside M&A and that he expects to open between five and ten new greenfield locations in fiscal 2025, signaling an increased focus on this organic growth strategy.

An analyst on behalf of Mike Dahl asked for specifics on the non-commodity price inflation assumptions in the guidance and any potential quantification of tariff impacts. He also inquired about any recent changes in the competitive landscape.

Answer

CFO Mark Witkowski reiterated an overall neutral pricing outlook for 2025, covering both commodity and non-commodity products. On tariffs, he stated that imported products are a small portion of the market (less than 15%) and the impact is expected to be neutral to slightly positive, though the situation is evolving. CEO Steve LeClair added that there have been no significant changes to the competitive environment.

Mike Dahl of RBC Capital Markets requested details on sales pace trends through the third quarter and into August. He also asked if the exit rate for incentives was higher than the 8% quarterly average, suggesting a sequential increase.

Answer

Douglas Yearley, Chairman & CEO, clarified that May was the weakest month of the quarter, with improvement in June and July. He noted that August foot traffic was up about 15%. Mr. Yearley explained the incentive increase to 8% from 7% was driven by discounts on finished spec homes, not a sequential monthly rise, and that these specific incentives had actually moderated in recent weeks.

Mike Dahl requested more quantification of the drivers behind the quarter's significant outperformance, beyond regional execution, such as weather catch-up or complementary product growth. He also asked for more detail on the forward-looking view for the remainder of the year, given expected market pressures.

Answer

EVP, CFO & Director Michael Miller emphasized that better-than-expected growth with regional and local builders, which were up mid-single digits, was a primary driver. For the outlook, Miller acknowledged increasing headwinds in single-family and multifamily markets. Citing analysis of public builder data, he suggested IBP's sales with them could decline by at least 5% in the second half. However, he expressed a constructive view for multifamily in 2026, supported by growing backlogs and bidding activity.

Mike Dahl asked about residential shingle pricing, noting the uptake on the April increase and inquiring about sequential price trends and the expectations embedded in the Q3 guidance.

Answer

CEO Brian Chambers confirmed good price realization from the April increase during Q2. He stated that the Q3 guidance assumes this pricing holds, supported by strong and steady demand from the company's contractor network. He acknowledged that the company is lapping a prior year price increase from August 2024, but expects the current pricing to remain firm through the third quarter.

Mike Dahl requested more detail on like-for-like pricing increases in captive retail and asked about internal forecasting processes, given the significant variance between Q1 guidance and actual results.

Answer

EVP, CFO & Treasurer Lori Hough stated that retail price increases were taken in certain geographies to balance volume and price but declined to quantify the impact. Regarding forecasting, she explained that variability often stems from the timing of end-consumer transaction closings, which can be difficult to predict precisely at quarter-end due to external factors like financing and weather.

Mike Dahl requested specifics on like-for-like pricing increases within the captive retail channel and asked about internal process improvements aimed at enhancing the accuracy of near-term financial guidance, given the recent variance.

Answer

EVP & CFO Laurie Hough responded that pricing strategies are determined locally to balance volume and demand, and while retail prices were raised in some areas, the company would not quantify the specific impact. Regarding forecasting, she noted that while internal models exist, final results are subject to the timing of end-consumer closings, which can be influenced by external factors like financing and weather, making precise prediction difficult.

Mike Dahl from RBC Capital Markets asked for more specificity on the gross margin pressures, particularly the role of input costs versus product mix-down. He also inquired if the permanent chassis requirement has been a specific obstacle in discussions with builder-developers and requested quantification of the 'more measured pace' in that channel.

Answer

EVP, CFO & Treasurer Laurie Hough explained that input costs are impacted by a mix of spot and contract pricing for materials, along with other component cost increases. President & CEO Tim Larson added that removing the chassis is an opportunity for the builder-developer channel. He noted the channel's pipeline is growing but project timelines are long (12-24 months) and can be paced by the macro environment, so the company is not providing specific numbers on the pace.

Mike Dahl requested more detail on the ex-China tariff exposure, including the largest countries and any impact from copper tariffs. He also asked for directional guidance on the quarterly cadence for sales and margins by business segment for the second half.

Answer

CEO Nicholas Fink stated that based on current information, the contemplated copper tariffs are not expected to have a material impact. CFO Jon Baksht explained the ex-China tariff exposure has a 'long tail,' with Mexico (non-USMCA) being the second largest but not nearly as significant as China. For segment guidance, Baksht directed Dahl to the earnings release table, which provides full-year targets, allowing for an inference of second-half performance based on first-half results.

Mike Dahl of RBC Capital Markets pressed for more detail on the Q3 and second-half gross margin guidance, the balance between market share and margin, and the current state of the truss capacity environment, including truss margin performance.

Answer

CEO Peter Jackson stated that the company's view of a market slowdown is driving the guidance, with the high end of the range representing a flatter environment. He noted the competitive landscape has stabilized but required margin concessions. Regarding trusses, he acknowledged underutilization but emphasized a focus on efficiency metrics like board foot per labor hour and network consolidation to manage overhead, confirming that some excess margin has been competed away.

Mike Dahl from RBC Capital Markets questioned the extended timeline for working through pre-loaded import inventory, which shifted from weeks to months, and asked for a breakdown of the revised margin guidance for the North American MDA segment.

Answer

Marc Bitzer, Chairman & CEO, explained that repeated delays in tariff implementation acted as an "invitation" for competitors to continue shipping products, extending the inventory issue through Q3. He and James Peters, EVP and CFO, clarified that the lower North American margin guidance is a direct result of these delays impacting factory leverage and promotional pressure, emphasizing it's a timing issue and not a change in the company's fundamental competitive position.

Mike Dahl asked about the competitive pricing environment in Flooring North America, specifically the inflection to a negative price/mix in Q2, and inquired about the potential cost pressure from new tariffs if they remain at currently articulated rates.

Answer

President & COO Paul De Cock explained that ongoing productivity initiatives and product mix improvements were offset by cost inflation and pricing pressure. CFO James Brunk added that he expects year-over-year improvement in price/mix through the second half of the year. Chairman & CEO Jeffrey Lorberbaum noted that the impact of new tariffs would be minimal in Q3 due to timing and that the company will adjust its strategies once the final rates are known.

Asked for specifics on inventory, including quantifying the residential shingle pre-buy and the resulting gross margin benefit in Q2, and how this fits into the full-year price-cost neutral outlook.

Answer

The company intentionally built inventory in Q1 to serve demand and take advantage of a price increase, a different strategy from last year. The inventory profit impact on Q2 gross margin is characterized as 'low single digit' and is expected to fade by Q3. The inventory build was heavily focused on residential shingles to meet anticipated carryover demand, especially in the western U.S.