D.R. Horton, Inc. Q3 FY2025 earnings call

• The D.R. Horton team delivered solid results for the third quarter with earnings of $3.36 per diluted share, consolidated pre-tax income $1.4 billion on $9.2 billion of revenues.
• Net sales orders in the third quarter were flat with the prior year quarter and increased 3% sequentially.
• Tenured operators balanced pace versus price to maximize returns, achieving 23,160 homes closed with a home sales gross margin of 21.8%.
• Generated $2.9 billion of cash from operations over the past twelve months and returned $4.6 billion to shareholders through repurchases and dividends.
• Rental operations generated $55 million of pre-tax income.
• Four Star reported revenues of $391 million with pre-tax income of $44 million.
• Financial services had a pre-tax profit margin of 35.7%.

Homebuilding

• Third quarter home sales revenues: $8.6 billion on 23,160 homes closed. Home sales gross margin: 21.8%. SG&A expenses increased 2% from last year, with SG&A as a percentage of revenues at 7.8%. Started 24,700 homes in the June quarter, expects starts in Q4 to be lower. Ended the quarter with 38,400 homes in inventory.

Rental Operations

• Generated $55 million of pre-tax income on $381 million of revenues from the sale of 1,065 single-family rental homes and 328 multifamily rental units. Rental property inventory at June 30 was $3.1 billion.

Four Star

• Reported revenues for the third quarter of $391 million on 3,605 lots sold with pre-tax income of $44 million. Four Star's owned and controlled lot position at June 30 was 102,000 lots. 63% of Four Star's owned lots are under contract with or subject to a right of first offer to D.R. Horton.

Financial Services

• Pre-tax income for the third quarter was $81 million on $228 million of revenue, resulting in a pre-tax profit margin of 35.7%. During the third quarter, the mortgage company financed 81% of homebuyers.

• Fourth quarter consolidated revenues expected in the range of $9.1 billion to $9.6 billion and homes closed by homebuilding operations in the range of 23,500 to 24,000.
• Full year 2025 consolidated revenues expected to be approximately $33.7 billion to $34.2 billion and homes closed for homebuilding operations in the range of 85,000 to 85,500.
• Plan to repurchase $4.2 billion to $4.4 billion of common stock in fiscal 2025.

• Affordability constraints and cautious consumer sentiment impacting new home demand.
• Economic volatility, changes in mortgage interest rates, and competition affecting sales incentives and gross margin.
• Labor and material cost fluctuations.
• Potential impact of the Canadian softwood lumber agreement on costs (not fully quantified).

Q: Alan Ratner asked about incentives trends and consumer FICO scores.

A: Paul Romanowski said incentives were choppy and responded to market, Michael Murray noted more buyers selecting FHA product.

Q: John Lovallo asked about gross margin beat and share repurchase.

A: Bill Wheat said third quarter margins were better than anticipated due to balanced incentives, and Bill Wheat explained share repurchase decision based on cash flow and valuation.

Q: Stephen Kim asked about SG&A control and ROE.

A: Jessica Hansen said SG&A beat was due to higher closings volume, and Bill Wheat discussed ROE and cash flow conversion targets.

Q: Matthew Bouley asked about community count and traffic trends.

A: Paul Romanowski said community count expected to moderate, and Paul Romanowski talked about choppy traffic influenced by rate and news cycle.

Q: Sam Reid asked about third-party broker relationships and incentives.

A: Michael Murray said broker attach rate north of 80%, Paul Romanowski talked about 3.99% rate as traffic driver.

Q: Eric Bosshard asked about stick/brick costs and product mix.

A: Jessica Hansen said stick/brick costs down y/y and q/q, Michael Murray mentioned strong adoption of smaller plans.

Q: Trevor Allinson asked about completed inventory and resale inventory.

A: Paul Romanowski said completed inventory expected to continue trending down, Michael Murray said resale not a big pushback.

Q: Rafe Jadrosich asked about market differences and lot cost.

A: Paul Romanowski said better performance in secondary markets, and Paul Romanowski talked about mid-single-digit lot cost inflation.

Q: Michael Rehaut asked about incentives trend and offsets.

A: Jessica Hansen said expected 50 basis point gross margin decline, and Jessica Hansen mentioned slight improvement in stick/brick costs.

Q: Mike Dahl asked about tariffs and rental ops.

A: Paul Romanowski said labor available, Bill Wheat said rental margins expected lower in Q4.

Q: Alex Rydeel asked about geographic demand and low FICO ratio.

A: Michael Murray talked about Florida market changes, Jessica Hansen mentioned sales in northwest lagging.

Q: Alex Barron asked about build time and affordability.

A: Paul Romanowski said cycle time reduced, Jessica Hansen mentioned average square footage decline.

Q: Jade Rahmani asked about home prices and competition.

A: Michael Murray said builders rational, Jessica Hansen said industry taking balanced approach.

Q: Jay McCandless asked about Canadian softwood lumber and gross margin.

A: Michael Murray said impact not quantified.

Q: Jay McCandless asked about holding gross margin and community growth.

A: Paul Romanowski talked about team performance, Jessica Hansen said community count expected to moderate.