D.R. Horton, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• D.R. Horton had consolidated pretax income of $798 million on $6.9 billion of revenues in Q1 2026, with a pretax profit margin of 11.6%.
• New home demand impacted by affordability and consumer sentiment, but net sales orders increased 3% year over year.
• Generated $3.6 billion of cash from operations over the past twelve months and returned $4.4 billion to shareholders.
• Return on assets ranks in the top 20% of S&P 500 companies.
• Incentives expected to remain elevated in fiscal 2026 depending on demand, mortgage rates, and market conditions.
• Rental operations focus on improving capital efficiency.
• Forestar's strong position to provide finished lots to the homebuilding industry.

Segment Performance

• Homebuilding: First quarter home sales revenues were $6.5 billion from 17,818 homes closed. Net sales orders increased 3% to 18,300 homes. Gross profit margin on home sales was 20.4%. Homebuilding pretax return on inventory was 18.6%.
• Rental operations: Generated $110 million from the sale of 397 single-family rental homes. Rental property inventory at December 31 was $2.9 billion, consisting of $2.5 billion multifamily and $356 million single-family.
• Financial services: Pretax income for the first quarter was $58 million on $185 million of revenues, with a pretax profit margin of 31.4%.
• Forestar: Reported revenues of $273 million on 1,944 lots sold in the first quarter, with pretax income of $21 million. Owned and controlled lot position at December 31 was 101,000 lots.

Guidance

• Second quarter expected consolidated revenues $7.3B - $7.8B, homes closed 19,700 - 20,200.
• Full year fiscal 2026 expected consolidated revenues $33.5B - $35B, homes closed 86,000 - 88,000.
• Forecasts operating cash flow >$3 billion, common stock repurchases ~$2.5 billion, and dividend payments ~$500 million.

Risks

• Affordability constraints and cautious consumer sentiment impacting new home demand.
• Incentive levels dependent on demand, mortgage interest rates, and market conditions, which can affect gross margins.
• Volatility in the economy and market conditions posing challenges to maintaining margins and returns.

Q: Stephen Kim asked about SG&A and if it surprised, with Paul Romanowski responding it was relatively in line with plan and due to lower closings but expecting improvement as year progresses.

Q: John Lovallo inquired about community count growth cadence, with Michael Murray stating community count up 12% year over year and expected to drift to mid-single to high single digit range.

Q: Matthew Bouley asked about margin moving pieces, with Jessica Hansen explaining warranty cost reversal and guide reflecting current market conditions.

Q: Ryan Gilbert asked about demand pickup with rate drops and supply side impact, with Paul Romanowski stating pleased with positioning and monitoring inventory and starts.

Q: Eric Bosshard asked about structural steps to address affordability, with Paul Romanowski mentioning focus on smaller homes and lot size flexibility.

Q: Michael Rehaut asked about FHFA comments on buybacks and incentives, with Paul Romanowski stating balanced approach and focused on housing demand and returns.

Q: Trevor Allinson asked about new home inventory and policy impact on demand, with Paul Romanowski stating inventory right-sizing and balanced approach to volume and margin.

Q: Rafe Jadrosich asked about market comparison and stick/brick costs, with Paul Romanowski stating opportunity for cost reductions and balanced approach.

Q: Ken Zener asked about demand amid low job growth, with Paul Romanowski and Jessica Hansen stating pent-up demand and focus on first-time buyers.

Q: Jade Rahmani asked about builders passing along rate savings, with Michael Murray and Jessica Hansen stating balanced approach based on market dynamics.

Q: Alex Barron asked about volume guide inclusion and margin guidance drivers, with Jessica Hansen clarifying volume guide and Michael Murray stating incentives driving Q2 margin guide.