Q1 2025 Earnings Summary
- D.R. Horton plans to return significant capital to shareholders by repurchasing between $2.6 billion and $2.8 billion of common stock and paying $500 million in dividends in fiscal 2025, demonstrating confidence in their cash flow and financial position.
- The company provided strong guidance for fiscal 2025, expecting consolidated revenues of $36 billion to $37.5 billion and to close 90,000 to 92,000 homes, indicating confidence in market demand and their operational capabilities.
- Inventory levels remain limited at affordable price points, and D.R. Horton is managing inventory effectively across regions, positioning themselves well for potential market share gains in a supply-constrained market.
- Average selling prices are expected to decrease slightly due to higher incentives, such as mortgage rate buydowns, which could impact revenue and margins. The company anticipates further downward movement in net ASP because of these incentive costs.
- Land and development costs are increasing, with land prices up 10% year-over-year and no significant relief expected. Higher lot costs may pressure profitability if these costs cannot be passed on to customers.
- Inventory buildup in certain markets like Florida and Texas could lead to increased competition, potentially putting pressure on pricing and margins in those regions.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -1% | Primarily driven by slightly lower home closings and average selling prices, reflecting elevated mortgage rates that constrained affordability. However, stronger performance in certain geographic regions partially offset the decline. |
Homebuilding | -2% | Reflects a marginal drop in closed homes amid affordability challenges, as well as higher incentives to stimulate demand. These conditions narrowed revenue, despite continued underlying interest in new housing. |
Rental | +12% | Improvement due to increased demand for rental properties and slightly higher unit pricing in certain markets. However, rising costs in single-family rentals remain a watch point for margins going forward. |
Forestar | -18% | Caused by slower lot sales to both third parties and D.R. Horton, combined with higher inventory levels from prior quarters. Reduced profitability resulted from carrying costs on undeveloped land. |
Financial Services | -5% | Linked to lower mortgage origination volume and reduced gains on loan sales, partly due to ongoing interest rate pressures. Title revenues trended similarly, highlighting softer transaction activity compared to the prior year. |
Northwest Region | -8% | Reflects a decline in home closings and soft price adjustments in key markets like Salt Lake City. Despite this, gross profit percentage improved due to managed construction costs and selective pricing strategies. |
Southwest Region | +8% | Benefited from robust closings in markets like Las Vegas and California, with favorable gross margins thanks to cost discipline and relatively resilient demand. However, any sustained affordability challenge could moderate growth going forward. |
South Central | -11% | Driven by fewer closings in the Fort Worth and Austin areas, along with competitive pricing needed to address affordability. These factors led to lower revenues and a softening in pre-tax income compared to prior-year levels. |
Southeast | -13% | Reflects declining closings and backlog as buyers faced elevated mortgage rates and home price pressures, leading to increased incentives that weighed on revenue growth. Affordability issues remain a key headwind in this region. |
North Region | +29% | Notable increase in home closings within suburban Washington, D.C. and Chicago, driving substantial revenue growth. Higher selling prices relative to costs also enhanced profitability in the period. |
Net Income | -11% | Decrease driven by lower consolidated revenues, reduced pre-tax margins, and higher SG&A relative to sales. Rental segment margins also pressured earnings, despite a nominal revenue uptick in that category. |
EPS (Diluted) | -7% | Reduced net income coupled with slightly fewer share repurchases dampened per-share results. Elevated incentives to address affordability and tighter margins contributed to the year-over-year EPS decline. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Consolidated revenues | Q2 2025 | no prior guidance | $7.7B to $8.2B | no prior guidance |
Homes closed | Q2 2025 | no prior guidance | 20,000 to 20,500 homes | no prior guidance |
Home Sales Gross Margin | Q2 2025 | no prior guidance | 21.5% to 22% | no prior guidance |
Consolidated Pretax Profit Margin | Q2 2025 | no prior guidance | 13.7% to 14.2% | no prior guidance |
Consolidated revenues | FY 2025 | $36B to $37.5B | $36B to $37.5B | no change |
Homes closed | FY 2025 | 90,000 to 92,000 homes | 90,000 to 92,000 homes | no change |
Income tax rate | FY 2025 | 24.5% | 24% | lowered |
Share repurchases | FY 2025 | $2.4B | $2.6B to $2.8B | raised |
Dividend payments | FY 2025 | $500M | $500M | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Capital return plans | Repurchased 12.5M shares for $1.8B (FY24), planned $2.4B in FY25, dividend ~$500M. Repeatedly emphasized mix of buybacks and dividends in Q3/Q2. | Repurchased 6.8M shares for $1.1B, planning $2.6–$2.8B repurchases FY25; $0.40 dividend. | Consistently mentioned; expanding buyback targets |
Revenue & closings guidance | Q4’24: “Flat to low single-digit” closings. Q3/Q2 detailed ranges near 90K–91K homes. | $7.7B–$8.2B Q2’25 revenue; $36B–$37.5B full-year; 20K–20.5K Q2 closings; 90K–92K FY closings. | Ongoing detailed ranges; stable to modest growth |
Inventory levels | Q4’24: 37,400 homes (down 11% YoY). Q3/Q2 also tracking stable/decreasing supply. | 36,200 homes (down 15% YoY); regional buildups in FL/TX but overall managed. | Consistent focus on aligning supply to demand |
Interest rate & mortgage incentives | Q4’24: Volatile ~6–7%; incentives “elevated.” Q3/Q2 also used buydowns, citing affordability concerns. | Rates 6–7%; rate buydowns pivotal incentive; heightened costs reducing margins. | Repeated emphasis; incentives remain high |
ASP shifts due to incentives | Q4’24: Mostly flat ASP but margins hit by incentives. Q3/Q2 noted mild ASP fluctuations; geographic mix also a factor. | Slight declines in net ASP driven by higher buydown costs. | Ongoing pressure from incentive-driven ASP |
Land, development & insurance | Q4’24: Lot cost inflation moderating from double-digit to high single-digit; stable insurance in certain markets. Q3/Q2 continued lot cost pressure; new construction insurance less volatile. | Land costs up 10% YoY; development costs remain high; no direct mention of insurance costs in Q1. | Persisting land inflation; some moderation expected |
Rental business performance | Q4’24: $100M pretax on $705M revenues; stable merchant-build approach. Q3/Q2 also saw solid revenues but noted capital market uncertainty. | $12M pretax on $218M revenues; margins pressured by higher rates. | Consistent merchant-build model; cap rate volatility weighing on margins |
Margin pressures & profitability | Q4’24: 23.6% gross margin, down 40 bps; still bracing for incentive-driven pressure. Q3/Q2 margins stable to slightly improving but facing cost headwinds. | 22.7% home sales gross margin, down 90 bps; further compression expected due to incentives. | Continued margin compression from incentives and costs |
Florida & Texas dynamics | Q4’24: No extreme geographic concentrations; FL/TX remain competitive. Q3/Q2 described moderate traffic and higher insurance in FL, stable demand in TX. | Local inventory buildups in FL/TX noted, with some valuation moderation; otherwise demand stable. | Continued watch on FL/TX affordability & inventory |
Election-related uncertainty | Q4’24: Uncertainty contributing to buyer hesitation; not mentioned in Q3/Q2. | Company monitoring policy shifts but focused on affordability; no major demand impact cited in Q1. | Reemerged in late 2024; causing subtle buyer delays |
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Gross Margin Outlook
Q: Can you explain the gross margin outlook for Q2? Is it due to higher incentives or changes in costs?
A: Management expects a slight step down in gross margin in Q2, mainly due to higher incentive levels in response to market conditions. They noted that 53% of homes closed this quarter were sold within the quarter, indicating current market representation. The margin on December closings was a little lower than the prior two months, affecting the outlook. [[0]] -
Cash Flow and Capital Return
Q: How are you allocating cash flow from operations relative to share repurchases and dividends?
A: They have distributed all cash flow from operations over the last 12 months to shareholders through repurchases and dividends and plan to continue this practice. The guidance of $2.6 to $2.8 billion in repurchases and $500 million in dividends reflects their expectation for cash flow from operations this year. [[4]] -
Closings Guidance and Confidence
Q: The second half closings guidance implies a 30% increase over the first half. What gives you confidence in this step-up?
A: Management feels good about their efficiency and housing and lot inventory positions to achieve the numbers. While early in the spring selling season, they believe their operators are positioned to take advantage of it and deliver on the guidance of 90,000 to 92,000 homes for the year. [[10]] -
Price vs. Pace Strategy
Q: Are you shifting focus to prioritize price and margin over volume in the near term?
A: They continue to evaluate the business at a community level, aiming to maximize returns by balancing price and pace. Local operators make decisions based on lot supply and demand, without corporate dictation of pace or margin. Sometimes they prioritize pace to boost sales and then improve margins to drive returns; it's a balance that's more art than science. [[19]] -
Labor and Material Cost Management
Q: How are you managing potential inflation in labor and material costs due to external factors like policy changes or natural disasters?
A: They currently have good access to labor and materials, allowing improvements in cycle time and holding pricing tight. While the impact of new administration policies is yet to be seen, they feel well-positioned to maintain labor and materials without expecting significant inflation in these costs over the next 12 months. [[13]] -
Impact of Rising Interest Rates on Customers
Q: With mortgage rates back at 7%, are customers behaving differently? Is traffic or response to incentives changing?
A: The most impactful incentive remains rate buydowns, which they've increased to maintain affordable monthly payments for buyers. Despite higher rates, they were successful last quarter, with 53% of homes closed sold within the quarter. Early indicators this quarter show pleasing traffic levels and sales pace, but it's still early in the season. [[15]] -
Addressing Affordability
Q: Are you taking steps to address affordability more meaningfully, perhaps by changing products and lowering ASP further?
A: Significant changes are challenging in the near term due to existing lot approvals and municipal guidelines. Adjustments are incremental and vary by community. They are exploring longer-term efficiencies in land usage and development costs. Notably, average home square footage decreased by 1% year-over-year, and attached homes (townhomes and duplexes) increased to 17% of closings, up from 15% sequentially. [[14]] -
Rental Segment Impact on Margins
Q: What's causing the larger decline in pretax margins compared to gross margins? Is the rental segment affecting this?
A: Lower margins in the rental segment are impacting pretax margins due to capital market uncertainties and higher interest rates making it more challenging for rental property buyers. They expect these challenges to alleviate moving into late 2025 and into 2026. [[18]] -
SG&A Leverage Expectations
Q: When do you expect to see better leverage on SG&A dollars, and what is your target SG&A ratio?
A: After making investments to expand market and community counts, they expect homebuilding SG&A percentage to be slightly higher in fiscal '25 compared to '24. However, they anticipate leveraging these investments beyond '25 into '26 and future years by maintaining an efficient infrastructure to support growth. [[6]] -
Lot Acquisition Strategy and Capital Efficiency
Q: How are you approaching lot acquisition, particularly between finished lot option contracts and self-developed lots? Any changes in strategy?
A: Approximately 65% of closings were on lots developed by third parties or Forestar. They continue to explore capital-efficient methods like land banking development services to enhance capital usage in their lot pipeline. They focus on risk transfer in contract structures and use land or lot bankers when they have an excess supply of finished lots they're not ready for. [[7]]