D.R. Horton (DHI) Q4 2026 Earnings: Gross Margin Falls to 19.5%

D.R. Horton (DHI) reported fiscal fourth-quarter 2026 results (quarter ended September 30, 2026) on October 29, 2026, through its earnings release and conference call. The D.R. Horton Q4 2026 earnings showed deliveries and cash returns on target, but the home sales gross margin fell below guidance and demand weakened[1]. Going into the quarter, three questions mattered: whether the gross margin could hold at 20.5%-21%, whether closings and orders could hold up, and whether releasing inventory could support at least $3 billion of operating cash flow and at least $3.25 billion of buybacks[2]. The gross margin fell to 19.5%, net sales orders fell 7% year over year, and cash flow and buybacks beat their targets[1]. Taken together, the company chose to protect deliveries, cut starts and add incentives as demand weakened. Cash generation has temporarily decoupled from profit, profit conversion has weakened, and growth has turned flat to down.

D.R. Horton is the largest US homebuilder by homes closed and has led in volume every year since 2002[3]. The company mainly sells lower-priced homes to first-time buyers, and its profit depends on homes closed, the closing price net of incentives and the cost of each home[4]. In fiscal 2026, it closed 84,202 homes and earned $30.6 billion of home sales revenue[1].

Gross margin misses guidance; Q1 guide drops to 18%-18.5%

The fourth-quarter home sales gross margin was 19.5%, 120 basis points below the third quarter's 20.7% and below the 20.5%-21% range guided in July[4][5][2]. Management attributed 80 basis points of the decline to weaker market conditions during the quarter that kept the company from offsetting higher costs with pricing, and the remaining 40 basis points to higher litigation reserves for two cases[4]. Excluding the above-normal litigation cost, the margin was about 19.9%, still below the low end of guidance.

Rising costs added to the pressure. On a per-square-foot basis, fourth-quarter revenue and stick-and-brick construction costs each rose 1% sequentially, while lot costs rose 4%; for the full year, lot costs rose 6%[4]. The average closing price was $365,600, up 1% sequentially, but the average price of new net sales orders, a better read on current pricing, was $356,600, down 2% both sequentially and year over year[4].

The profit pressure carries into the next quarter. The fourth-quarter consolidated pre-tax profit margin was 10.8%, below the 12.3%-12.8% guidance, and included a $91.4 million impairment in the rental business[1][2]. The company guided its fiscal 2027 first-quarter gross margin to 18%-18.5% and its pre-tax margin to 7%-8%[4]. Management said this level reflects current market conditions rather than a long-term level, and that any recovery depends on spring demand and mortgage rates.

Closings on target as orders and cancellations deteriorate

D.R. Horton closed 22,915 homes in the fourth quarter, within its 22,500-23,000 guidance, and 84,202 homes for the full year[1][2]. Orders weakened clearly: net sales orders were 18,619 homes, down 7% year over year, order value fell 9% to $6.6 billion, and the cancellation rate rose to 23% from 20% a year earlier[1]. Active selling communities rose 10% year over year, which implies that sales per community fell about 15%[4].

Demand did not improve in October. Management said traffic and sales were similar to September and below normal seasonal levels[4]. Community expansion also pushed up costs, with fourth-quarter homebuilding SG&A at 8.7% of revenue[4]. The company's fiscal 2027 guidance calls for 79,000-84,000 homes closed and $30-32 billion of revenue, with both midpoints below fiscal 2026[1].

Cash flow and buybacks beat targets

D.R. Horton met all of its cash return targets. Fiscal 2026 operating cash flow was $3.5 billion; after $880.8 million in the first nine months, that implies about $2.6 billion in the fourth quarter[1][5]. Full-year buybacks were $3.6 billion, above the at least $3.25 billion committed in September, and debt to total capital was 20.8% at year end[1][6].

The cash came mainly from shrinking inventory. The company started 13,100 homes in the fourth quarter, down 45% sequentially, and homes in inventory fell from 38,000 at the end of June to 28,200[4][7][1]. Completed unsold homes rose from 7,600 at the end of June to 8,800, though that is below about 9,300 a year earlier[7][1][8]. These homes are a source of cash and also a source of gross margin pressure. For fiscal 2027, the company plans about $3.5 billion of operating cash flow and about $3 billion of buybacks, and management said the cash will come from faster inventory turns and lower rental assets[1][4].

Conclusion

D.R. Horton's cash generation stayed steady as profits fell, but its profit conversion has clearly weakened. Deliveries and cash relied on shrinking inventory, while gross margin and orders fell as mortgage rates rose. Part of the steady cash flow came from a one-time inventory reduction, and less cash can be released if demand does not recover. The key evidence next is whether the first-quarter gross margin holds at 18%-18.5%, whether orders stop falling, and whether completed unsold homes can be sold without further price cuts.

Sources

[1] DHI Q4 FY2026 8-K EX-99.1 filed 2026-10-29 · 2026-10-29 · 8-K earnings release · https://www.sec.gov/Archives/edgar/data/882184/000088218426000119/a9302026exhibit991.htm [2] DHI Q3 FY2026 earnings call 2026-07-21 · 2026-07-21 · earnings call · https://gateway.drillr.ai/mcp/private [3] DHI FY2025 10-K filed 2025-11-19 · business and scale · 2025-11-19 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000882184&type=10-K&dateb=&owner=include&count=40 [4] DHI Q4 FY2026 earnings call 2026-10-29 · 2026-10-29 · earnings call · https://gateway.drillr.ai/mcp/private [5] DHI Q3 FY2026 10-Q filed 2026-07-23 · 2026-07-23 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000882184&type=10-Q&dateb=&owner=include&count=40 [6] DHI 8-K filed 2026-09-15 · repurchase authorization · 2026-09-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000882184&type=8-K&dateb=&owner=include&count=40 [7] DHI Q3 FY2026 8-K filed 2026-07-21 · 2026-07-21 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000882184&type=8-K&dateb=&owner=include&count=40 [8] DHI FY2025 10-K filed 2025-11-19 · cash flow and capital · 2025-11-19 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000882184&type=10-K&dateb=&owner=include&count=40