Sam Reid

Sam Reid asked about the sequential step-up in incentive loads from Q3 to Q4 2025, seeking clarification on the levers used to clear spec inventory (price reductions vs. buy-downs) and the incentive loads embedded in the Q1 2026 guide. He also inquired about categories driving lower stick and brick costs in 2026 and trends in labor.

Answer

Jim Ossowski, Senior VP of Finance, attributed the Q4 incentive increase to aggressive efforts to move speculative inventory, noting financing incentives remained flat. Ryan Marshall, President and CEO, reiterated that incentives are expected to remain elevated. Mr. Ossowski added that Q4 stick and brick costs were $78/sq ft, with expectations for flat to slightly down costs in 2026 due to help from lumber and labor, including tariff impacts.

Sam Reid questioned the sequential step-up in incentive loads from Q3 to Q4 2025, specifically how much was geared towards clearing spec inventory, and asked for details on stick and brick cost reductions and labor market trends.

Answer

Jim Ossowski, Senior VP of Finance, explained that the Q4 incentive increase was primarily due to aggressive efforts to move speculative inventory, with financing incentives remaining flat. Mr. Ossowski also noted that Q4 stick and brick costs were $78 per square foot, with expectations for flat to slightly down costs in 2026 due to help from lumber and labor availability.

Sam Reid inquired about the lag between lower horizontal development costs and their impact on the P&L, and whether building smaller Del Webb communities affects their margin profile.

Answer

Ryan Marshall, President and CEO, estimated a 9-12 month lag for land development costs to impact the P&L, with favorable effects potentially in late 2026 and fully in 2027. He clarified that the current size of Del Webb communities (around 750 units) has been standard for about a decade, so it does not change the historical margin profile for the brand.

Sam Reid asked about the lag between lower horizontal development costs and their impact on the P&L, and the potential for favorable lot cost inflation in 2026. He also inquired if building smaller Del Webb/active adult communities (around 750 units) changes the margin profile compared to historical larger communities.

Answer

Ryan Marshall (President and CEO, PulteGroup Inc.) explained that land development typically takes 9-12 months, so current favorable terms would impact the back half of 2026 and fully in 2027, potentially reducing land inflation. Mr. Marshall clarified that PulteGroup has been building Del Webb communities of the current size for about a decade, and this does not change the margin profile from historical performance, as only a few legacy communities were much larger.

Sam Reid of Wells Fargo asked for a breakdown of the back-half margin guidance, specifically the timing of the tariff impact versus other pressures in Q3. He also inquired about traffic and conversion trends in Del Webb communities during April's equity market volatility.

Answer

CFO Jim Ossowski explained that elevated incentives and the sale of spec inventory will affect both Q3 and Q4 margins, with the tariff impact being primarily a Q4 event. CEO Ryan Marshall added that while the Del Webb buyer is sensitive to market volatility, the segment remains a strong performer. He noted that the day-to-day sales volatility in April was a broader phenomenon observed across all consumer groups.

Sam Reid asked about incentive loads as a percentage of revenues in Q4, what's embedded in Q1 guidance, and how aged inventory is being incentivized. He also questioned whether the wide range of 2026 delivery volume outcomes implies different assumptions for spec versus Built-to-Order (BTO) at the high versus low end, and if the low end assumes BTO doesn't meet expectations.

Answer

President and COO Robert McGibney noted mortgage concessions were around 1% in Q4, primarily for aged inventory, and expects overall incentive usage to decrease. Chairman and CEO Jeffrey Mezger added that typical incentives are 1-2% for closing cost assistance. Robert McGibney explained the delivery range is due to uncertainty about the spring selling season, with the midpoint assuming a 'normal' spring and slightly over four BTO sales per community in H1. A stronger spring could lead to the high end.

Sam Reid asked about incentive loads as a percentage of revenues in Q4 and what's embedded for Q1, specifically how aged inventory is being incentivized. He also sought context for the wide range in 2026 delivery volume guidance, particularly whether the low end assumes built-to-order (BTO) sales do not meet expectations.

Answer

President and COO Robert McGibney indicated mortgage concessions were around 1% in Q4, primarily applied to inventory, and expects incentive usage to decrease. Chairman and CEO Jeffrey Mezger added that typical incentives are 1-2% for closing costs. McGibney explained the 2026 delivery range reflects current visibility into the spring selling season, with the midpoint assuming a "normal" spring and slightly over four BTO sales per community in the first half. The high end would be achieved with a stronger spring.

Sam Reid of Wells Fargo asked about the metrics used to decide when to walk away from lot options, as the company did with 9,700 lots, and the risk of further cancellations. He also inquired about the broker attach rate in Q2 versus Q1 and any changes in commission rates.

Answer

Chairman & CEO Jeffrey Mezger described a fluid, multi-stage approval process where deals are re-evaluated based on market conditions and return criteria, leading to the cancellation of early-stage lots that no longer met underwriting standards. President & COO Robert McGibney stated the broker participation rate was around 70% in Q2, up slightly from Q1, with a typical commission rate of about 2%, noting they haven't seen higher commissions drive more sales.

Sam Reid asked for a breakdown of how the company expects to achieve its second-half delivery goals, questioning the balance between improved cycle times and a higher mix of spec homes. He also asked why inventory home deliveries were below expectations in Q1.

Answer

COO Rob McGibney explained that the second-half delivery plan is achievable through a combination of improving cycle times towards the 120-day goal and selling available inventory. CEO Jeffrey Mezger attributed the Q1 miss on inventory sales to being 'a little slow' in implementing the necessary price adjustments, which were not made until mid-February, thus missing the window for more Q1 closings.

Sam Reid asked for a deeper understanding of the projected increase in SG&A dollars for fiscal 2026, requesting a breakdown of incremental expenses such as third-party broker commissions and new community growth. He also inquired about lot cost inflation trends, specifically where Toll Brothers exited fiscal 2025 and what is embedded in the 2026 guidance.

Answer

Douglas Yearley, Chairman and CEO, explained that 50 basis points of the SG&A increase is due to lower fixed cost leverage from reduced revenue, with the remaining 25 basis points attributed to inflation, wages, and modestly elevated internal and third-party sales commissions in a softer market. Regarding lot costs, Yearley stated that the guide assumes flat land prices, noting modest decreases in construction costs in most regions and ongoing efforts to renegotiate land deals.

Sam Reid of Wells Fargo & Company asked for details on construction cycle times for the majority of communities and levers for improvement. He also inquired about the specifics of SG&A cost controls and if Q4 guidance includes grand opening expenses.

Answer

Douglas Yearley, Chairman & CEO, explained that cycle times for the remaining 65% of communities range from eight to eleven months, influenced by home complexity and local permitting. He credited improvements to process optimization and the efficiency of the spec building model. Martin Connor, CFO, attributed SG&A outperformance to stable headcount, controlled commissions, and technology leverage. Both confirmed that costs for new community openings are factored into the Q4 SG&A guidance.

Sam Reid requested more details on the SG&A cuts, including the types of back-office roles eliminated and their concentration, and asked for additional context on the meter business's high single-digit growth and a recent contract award.

Answer

CFO Robyn Bradbury stated that the $30 million in SG&A cuts primarily involved personnel-related costs, reducing about 4% of non-sales-focused roles across the board, driven by efficiency gains from technology and M&A overlap. CEO Mark Witkowski highlighted the meter business's success in advancing municipal digitization, securing large contracts by demonstrating value in converting legacy systems, and achieving some of the largest projects in company history, expecting continued strong growth.

Sam Reid asked about the second half EBITDA margins, specifically the sequential gross margin outlook for Q3 and Q4, and requested a rough sense of the current size of private label revenue, its growth in Q2 versus Q1, and the expected sizing of SG&A optimization initiatives.

Answer

Robyn Bradbury (CFO) expects gross margins to be stable to the second quarter in the back half, implying continued improvement from private label and sourcing initiatives. Mark Witkowski (CEO) stated that private label currently represents about 4% of revenue and is steadily growing. Robyn Bradbury (CFO) explained that SG&A cost-out actions focus on acquisition synergies, controllable spend reductions (travel, overtime), and managing headcount, noting that inflation and incentive compensation increases are contributing to higher SG&A rates.

Sam Reid inquired about the current size of private label as a percentage of revenue, its growth from Q1 to Q2 2025, and the expected sizing of SG&A optimization initiatives for the remainder of 2025 and into 2026.

Answer

CEO Mark Witkowski stated that private label is currently about 4% of revenue and steadily growing. CFO Robyn Bradbury detailed SG&A optimization areas, including acquisition synergies, controllable spend reductions (travel, overtime), and managing headcount, noting that inflation and incentive comp increases are offsetting some efforts.

Sam Reid asked for more detail on plumbing price realization, specifically how the reported 3% in Q3 compared to expectations and if the Q4 guidance contemplates any sequential step-up in plumbing pricing. He also inquired about Delta Faucet's performance across different channels, including e-commerce, trade, and home center.

Answer

Jon Nudi, President and CEO, stated that plumbing pricing played out as expected, driven by tariff mitigation efforts, including optimizing footprint, supplier concessions, and cost structure. Rick Westenberg, VP and CFO, added that mitigation actions, including pricing, are expected to gain increased traction over time. Jon Nudi reported strong Delta Faucet performance in e-commerce and wholesale (low single-digit growth), with relatively flat performance in retail, and expressed excitement for 2026 retail plans.

Sam Reid asked about plumbing price realization in Q3 relative to expectations and if Q4 guidance anticipates a sequential step-up in plumbing pricing. He also inquired about Delta Faucet's performance in the home center channel compared to its strong e-commerce and trade channel results.

Answer

President and CEO Jon Nudi stated that plumbing pricing played out as expected, with Delta Faucet effectively mitigating tariffs through footprint optimization, supplier concessions, cost structure, and targeted pricing. VP and CFO Rick Westenberg added that mitigation actions, including pricing, are expected to gain increased traction over time. Jon Nudi noted that Delta Faucet saw relatively flat, or slightly down, performance in retail (home center), while e-commerce and wholesale channels showed nice growth.

Sam Reid of Wells Fargo & Company questioned the market reception to the recent plumbing price increase, the drivers of the expected volume slowdown in the second half, progress on strategic sourcing shifts, and the typical lag for commodity costs to impact the P&L.

Answer

CFO Rick Westenberg confirmed the full-year pricing benefit in plumbing is expected to be mid-single digits and attributed the second-half volume outlook to some Q2 sales pull-forward and general macroeconomic headwinds. He also noted the commodity cost lag is typically two quarters and reiterated the focus on diversifying the supply chain away from China.

Sam Reid asked about Masco's strategy in the new construction channel, particularly regarding competitive pricing pressures. He also inquired about performance differences across the brand portfolio, such as between the home-center-focused Delta brand and the higher-end Brizo brand, in light of recent economic pressures.

Answer

President and CEO Keith Allman reiterated that Masco's focus remains on the repair and remodel market, which constitutes over 85% of its business, and that the company selectively engages with new build customers who value its innovation. He declined to detail channel-specific pricing strategies. Allman noted that higher-end products are holding up relatively well, while pressure is being felt in retail and DIY paint, but did not provide specific brand-level performance details.

Sam Reid followed up on the sequential step-up in warranty expense, seeking a deeper understanding of its normalization into Q1, and asked for details on Q1's embedded lot costs and stick and brick expectations. He also inquired about the breakdown of incentives between price discounting and rate buydowns, specifically if the use of significantly below-market buydowns (e.g., 3.99%) increased in Q4.

Answer

Bill Wheat, CFO, explained that the litigation impact was due to several larger-than-normal settlements not expected to repeat, and while lot costs in closings are expected to increase incrementally, they will strive to offset this with stick and brick savings. Jessica Hansen, SVP of Communications, confirmed that D.R. Horton leaned more heavily into offering 3.99% rates as anticipated, resulting in the mortgage rate in their backlog falling below 5%. She added that the percentage of buyers receiving a rate buydown increased sequentially to 73% in Q4 from 72%.

Sam Reid asked for more detail on the sequential step-up in warranty expense and why it's expected to normalize in Q1, along with the embedded lot costs and stick and brick expectations for Q1. He also requested a breakdown of incentives between price discounting and rate buydowns, specifically if the use of significantly below-market buydowns (e.g., 3.99%) increased in Q4.

Answer

CFO Bill Wheat clarified that the litigation impact was due to several larger-than-normal settlements, which are not expected to recur. He anticipates incremental increases in lot costs for closings, with efforts to offset this through stick and brick savings. SVP of Communications Jessica Hansen confirmed D.R. Horton leaned more heavily into 3.99% rate buydowns, with the mortgage rate in backlog now below 5% and 73% of Q4 buyers receiving a rate buydown, up from 72% sequentially.

Sam Reid of Wells Fargo & Company asked for details on third-party broker relationships, including attachment and commission rates, and the composition of Q4 incentives, particularly the uptake and purpose of the 3.99% rate offering.

Answer

EVP & COO Michael Murray confirmed the broker attachment rate is over 80%. SVP Jessica Hansen added that commissions impact results by about 270 basis points. President and CEO Paul Romanowski described the 3.99% rate as primarily a traffic driver, noting the average rate on closings was just over 5% and that rate buydowns are the most significant incentive.

Sam Reid of Wells Fargo asked about D.R. Horton's third-party broker relationships, including the attachment rate and commission levels, and whether there was a competitive response to peers. He also sought details on the composition of Q4 incentives, specifically the role and uptake of the 3.99% rate buy-down.

Answer

EVP and COO Michael Murray confirmed a broker attachment rate north of 80%, while SVP Jessica Hansen noted commissions average about 270 basis points. President and CEO Paul Romanowski described the 3.99% rate as a community-specific traffic driver, stating the average closing rate was just over 5% and that rate incentives are the largest component of the incentive mix.

Sam Reid of Wells Fargo & Company asked about the outlook for community count in 2026 if demand remains soft and whether the reduction in the delivery guide was concentrated in specific geographies like Florida and Texas.

Answer

Executive Jessica Hansen explained that future community count decisions are made at the local market level and that it's easier to slow down growth than to accelerate it. An executive response confirmed that softer markets like Texas and Florida would naturally see fewer starts, but this is balanced by growth in newer, less-supplied markets.

Sam Reid asked to quantify the benefit to ceramic volumes in Q3 from the new Dow tile initiative into Lowe's and if additional selling benefits for Q4 were embedded in the guidance. He also requested quantification of the impact of four additional shipping days in Q1 2026 and four fewer in Q4 2026 on the top and bottom lines.

Answer

Chairman and CEO Jeff Lorberbaum stated that the Lowe's/ADG acquisition had not significantly impacted ceramic business in Q3. CFO James Brunk explained that the four additional shipping days in Q1 2026 represent about a 6.5% benefit to sales year-over-year, with each day roughly a 1%-1.5% change, and noted a corresponding reduction in Q4 2026.

Sam Reid inquired about where competitive pricing pressures are most acute in the U.S. and whether peers are passing through tariff-related costs. He also asked if the company's ERP transition provides better data on smaller customers to manage pricing and inventory.

Answer

President & COO Paul De Cock stated that Mohawk is implementing an 8% price increase and expects the industry will have to raise prices further due to higher tariffs. Chairman & CEO Jeffrey Lorberbaum confirmed the new ERP system provides better analytical capabilities but has not yet dramatically changed the company's core strategies.

Sam Reid asked for more details on the strong waterworks results, including feedback from large home builder customers, confirmation of a pullback in new residential subdivision projects accelerating in August, and the geographic distribution of Ferguson's residential waterworks business, particularly regarding any under-indexing in markets like Florida.

Answer

Kevin Murphy, President, CEO & Director, Ferguson, expressed satisfaction with Waterworks' 15% growth and 20% two-year stack, attributing it to a diverse business mix and expansion into engineering services. He highlighted the significant impact of large capital non-residential projects. For residential waterworks, Murphy confirmed a broad-based U.S. presence, including strength in the Southeast and South, and no under-indexing in Florida. He acknowledged pressure on new residential construction and anticipated continued near-term pressure on new residential waterworks installation, despite no significant falloff in bidding activity.

Sam Reid inquired about the strong waterworks results, asking for insights into demand from large home builder customers, particularly regarding any accelerated pullback in new residential subdivision projects in August, and the geographic distribution of Ferguson's residential waterworks business.

Answer

CEO Kevin Murphy confirmed strong waterworks performance (+15% in Q4, +20% two-year stack) driven by diverse business mix and large capital projects. He noted broad-based residential business across the U.S., including strength in the Southeast, and while new residential construction faces pressure, bidding activity hasn't significantly fallen off, though near-term pressure on new residential waterworks installations is anticipated.

Sam Reid asked for more details on the softness in the residential remodel market, specifically whether demand from higher-income consumers is cracking and where remodel backlogs sit compared to one to two quarters ago. He also inquired about waterworks strength, feedback from large home builder customers regarding a pullback in new residential subdivision projects, and the geographic distribution of Ferguson's residential waterworks business, including whether it under-indexes in markets like Florida.

Answer

Kevin Murphy (CEO) acknowledged continued pressure in the remodel market but noted that the higher end (Ferguson Home) is performing better with 3% growth and healthy showroom traffic, contrasting with the lower end (residential trade plumbing) which saw a 2% decrease due to new construction pressure and PVC price deflation. For waterworks, he expressed satisfaction with 15% growth, attributing it to a diverse business mix and strong impact from large capital projects. He confirmed Ferguson does not under-index in Florida and has broad-based residential strength. He acknowledged pressure on new residential construction but noted no significant falloff in bidding activity, anticipating continued near-term pressure on new residential waterworks installations.

Sam Reid requested a deeper analysis of the accelerating growth in Waterworks, asking about specific subcategory drivers and bidding activity tied to new residential construction. He also asked for context on the wide range of outcomes implied by the updated Q4 guidance.

Answer

CEO Kevin Murphy credited the Waterworks growth to successful business diversification into public works and treatment plants, and noted surprisingly supportive bidding activity in new residential construction. CFO Bill Brundage explained the wide Q4 guidance range reflects market uncertainty but that the company expects a solid quarter, with mid-single-digit growth at the midpoint.

Sam Reid of Wells Fargo & Company inquired about pricing trends for finished goods, which constitute the majority of revenue, and asked for details on SG&A efficiencies and growth drivers.

Answer

CFO Bill Brundage noted that finished goods pricing was broadly flat in FY24, below typical low-single-digit inflation, with price increases being more 'spotty'. He also explained that SG&A deleveraging was largely driven by deflationary pressures, and the company manages its labor costs, which are nearly 60% of the total, in line with volume trends. CEO Kevin Murphy added that they continue to invest in technology and facilities to support long-term growth.

Sam Reid sought context on Q3 roofing volumes, asking for the expected industry decline and whether Owens Corning's outperformance is driven by execution or incremental volume from its new Medina, Ohio capacity.

Answer

CEO Brian Chambers projected the U.S. shingle market could be down mid-single digits in Q3, assuming normalized storm activity. He attributed Owens Corning's outperformance to its strong contractor engagement model, which creates loyal demand. He noted the new Medina line is ramping up to service this existing demand, where the company has been lagging, and to help rebuild its own lean inventories.

Sam Reid asked about the potential margin uplift from new laminate shingle capacity, particularly if it replaces lower-margin strip shingle production.

Answer

CEO Brian Chambers confirmed that increasing laminate shingle sales creates a positive mix shift and has been a key driver of the Roofing segment's strong margin performance. While not quantifying the exact margin differential, he highlighted that the market is shifting towards laminates, which is the strategic driver for OC's capacity investments, such as the Medina, Ohio facility conversion.

Sam Reid of Wells Fargo inquired about the drivers for Q2 gross margin performance, the assumptions for Q3 margin guidance, and the geographic breakdown of the year-over-year increase in controlled lots.

Answer

President and CEO Gregory Bennett noted that sticks and bricks costs were flat in Q2. EVP and CFO Russell Devendorf explained that the Q3 margin outlook includes continued pressure from incentives, particularly successful rate buy-down programs. He also detailed that the lot growth was spread across the footprint, with Dallas adding about 600 lots and significant increases in Chattanooga, Central Georgia, Greenville, and Houston.

Sam Reid from Wells Fargo followed up on the 200-300 basis point margin erosion from lot costs, inquiring if this pressure is specific to 2025 or could extend into 2026. He also asked about the expected cadence of community count growth throughout 2025.

Answer

EVP & CFO Russ Devendorf responded that he expects the significant lot cost inflation to level off, suggesting the current rate of margin erosion from this factor should not persist into 2026 and beyond. Regarding community count, Devendorf projected a ratable increase during 2025, growing from 78 communities at the end of 2024 to nearly 90 by the end of 2025.

Sam Reid questioned why chemical pricing remains deflationary if competitive pressures have not intensified and asked if any Q2 sales were pulled forward in anticipation of tariffs.

Answer

CEO Peter Arvan acknowledged that while there is no macro reason for chemical price deflation, the pressure seen earlier in the year has persisted without worsening. He stated there was no material demand pull-forward ahead of tariffs, as buying patterns remained normal for the season, and he does not expect a 'whipsaw' effect in Q3.

Sam Reid asked about the drivers behind the swing in equipment sales from Q4 to Q1, the mix of maintenance versus discretionary spending within the equipment category, and the philosophical outlook for 2026 given the current market dynamics.

Answer

CEO Peter Arvan attributed the Q4-to-Q1 swing in equipment sales primarily to the impact of hurricane-related repairs in Florida during the prior year's Q1. He stated he has not seen a significant trade-down in technology for equipment. Regarding 2026, he expressed confidence in the growing installed base for maintenance but noted that new construction recovery would depend on an improving macro environment, while also observing that new construction activity is already significantly down from its peak.

Asked about the intra-quarter margin volatility for Aspen, Aspen's historical pricing strategy compared to competitors, and the dynamics of implementing tariff-related price increases across different sales channels.

Answer

James Perry stated it's too early to provide specific bands for Aspen's intra-quarter margin swings around the 24% average but said it could be several hundred basis points. He noted Aspen has historically priced well and will now follow CSWI's discipline. Regarding pricing by channel, he explained they are heavily weighted towards distribution and focus on protecting margin dollars, feeling comfortable with their ability to pass through pricing as needed.