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F500-2021-148-D.R.-Horton

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F500-2020-183-D.R. Horton

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Founded in 1978, D.R. Horton is the largest homebuilder by volume in the U.S. The company acquires and develops land, building and selling both single-family detached and attached homes in 36 states. D.R. Horton also provides mortgage financing, house examination, and closing services, plus title insurance policies. The company owns and develops properties for the rental market as well.

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Q1 2025

D.R. Horton (DHI): Company Profile, Stock Price, News, Rankings

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D.R. Horton

d.r. horton

Good morning, and welcome to the First Quarter 2025 Earnings Conference Call for Dior Horton, Horton, America's Builder, the Largest Builder in the United States. Please note this conference is being recorded. I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D. R. Horton.

Thank you, Paul, and good morning. Welcome to our call to discuss our financial results for the Q1 of fiscal 2025. Before we get started, today's call includes forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D. R.

Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward looking statements are based upon information available to D. R. Horton on the date of this conference call and D. R.

Horton does not undertake any obligation to publicly update or revise any forward looking statements. Additional information about factors that could lead to material changes in performance is contained in D. R. Horton's Annual Report on Form 10 ks, which is filed with the Securities and Exchange Commission. This morning's earnings release can be found on our website at investor.drhorton.com, and we plan to file our 10 Q in the next few days.

After this call, we will post updated investor and supplementary data presentations to our Investor Relations site on the Presentations section under News and Events for your reference. Please note that we have added and updated several slides in our investor presentation to highlight our returns focused strategy and performance. Now, I will turn the call over to Paul Romanowski, our President and CEO.

Thank you, Jessica, and good morning. I'm pleased to also be joined on this call by Mike Murray, our Executive Vice President and Chief Operating Officer and Bill Weave, our Executive Vice President and Chief Financial Officer. For the Q1, the D. R. Horton team delivered solid results, highlighted by earnings of $2.61 per diluted share.

Our consolidated pre tax income was $1,100,000,000 on $7,600,000,000 of revenues with a pre tax profit margin of 14.6 percent. We remain focused on enhancing capital efficiency to produce sustainable returns and cash flow. Our homebuilding pre tax return on inventory for the trailing 12 months ended December 31 was 26.7%. Our return on equity was 19.1 percent and return on assets was 13.4%. Our return on assets ranks in the top 15% of all S and P 500 Companies for the past 3, 5 10 year periods.

During the 3 months ended December 31, we generated consolidated operating cash flow of $647,000,000 and returned $1,200,000,000 to shareholders through share repurchases and dividends. Over the past 12 months, we returned essentially all of the cash we generated to shareholders through repurchases and dividends. Overall, the demographics supporting housing demand remained favorable. And although both new and existing home inventories have increased from historically low levels, the supply of homes at affordable price points is generally still limited. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buy downs and we have continued to start and sell more of our smaller floor plans.

Our local teams have been successful meeting the market with net sales orders this quarter decreasing only slightly from the prior year. We typically experience our seasonally slowest sales demand in the Q1 and our tenured local operators seek to find the right balance of sales pace, pricing, incentives and inventory levels to position each community for optimal returns as we enter the spring. With 53% of our Q1 closings also sold in the same quarter, our sales, incentive levels and gross margin are generally representative of current market conditions. With our focus on affordable product offerings, homes and inventory, continued improvement in our construction cycle times and finished lots available in our pipeline, we are well positioned for the remainder of fiscal 2025. Mike?

the Q1 of fiscal 2025 decreased 7% to $2.61 per diluted share compared to $2.82 per share in the prior year quarter. Net income for the quarter was $845,000,000 on consolidated revenues of $7,600,000,000 Our first quarter home sales revenues were $7,100,000,000 on 19,000 and 59 homes closed compared to $7,300,000,000 on 19,340 homes closed in the prior year quarter. Our average closing price for the quarter was $374,000 $374,900 down 1% sequentially and roughly flat with the prior year quarter. Bill?

Our net sales orders for the Q1 decreased 1% from the prior year to 17,837 homes and order value decreased 2% to $6,700,000,000 Our cancellation rate for the quarter was 18% down from 21% sequentially and from 19% in the prior year quarter. Our average number of active selling communities was up 2% sequentially and up 10% year over year. The average price of net sales orders in the Q1 was $373,000 which was down 1% both sequentially and from the prior year quarter. Jessica?

Our gross profit margin on home sales revenues in the Q1 was 22.7%, down 90 basis points sequentially from the September quarter as expected due to higher incentive costs. On a per square foot basis, home sales revenues and stick and brick costs were both relatively flat sequentially, while lot costs increased approximately 3%. Our incentive costs are expected to increase further on homes closed over the Our incentive costs are expected to increase further on homes closed over the next few months, so we expect our home sales gross margin to be lower in the Q2 compared to the Q1. Our incentive levels and home sales gross margin for the full year of fiscal 2025 will be dependent on the strength of demand during the spring selling season in addition to changes in mortgage interest rates and other market conditions. Phil?

In the Q1, our homebuilding SG and A expenses increased by 6% from last year and homebuilding SG and A expense as a percentage of revenues was 8.9%, up 60 basis points from the same quarter in the prior year and in line with our expectations. Our increased SG and A costs are primarily due to the expansion of our operating platform. Our employee count is up 8% from a year ago. Our community count is up 10% and our market count has increased 7% to 126 markets in 36 states. The investments we have made in our team and platform position us to execute and sustain our strategic plans to produce strong returns, cash flow and market share gains.

We started 17,900 homes in the December quarter and ended the quarter with 36,200 homes in inventory, down 15% from a year ago and approximately 1200 homes lower than at the end of September. 25,700 of our homes at December 31 were unsold relatively flat with year end. 10,400 of our unsold homes at quarter end were completed of which 1300 had been completed for greater than 6 months. For homes we closed in the Q1, our construction cycle times improved a few days from the 4th quarter and approximately 3 weeks from a year ago.

Our improved cycle times position us to turn our housing inventory faster in 2025 and we will continue to manage our homes and inventory and starts pace based on market conditions and to achieve targeted closings by community. Mike?

at December 31 consisted of approximately 640,000 lots, of which 24% were owned and 76% were controlled through purchase contracts. We remain focused on our relationships with land developers across the country to allow us to build more homes on lots developed by others, which enhances our capital efficiency, returns and operational flexibility. Of the homes we closed this quarter, 65 percent were on a lot developed by either Forestar or a third party, up from 62% in the prior year quarter. Our 1st quarter homebuilding investments in lots, land and development totaled $2,400,000,000 of which $1,500,000,000 was for finished lots, dollars 710,000,000 was for land development and $140,000,000 was for land acquisition. Paul?

In the Q1, our rental operations generated $12,000,000 of pre tax income on $218,000,000 of revenues from the sale of 311 single family rental homes and 504 multifamily rental units. This quarter's rental pre tax profit margin was impacted by recent uncertainty in the capital markets and higher interest rates for purchasers of rental communities. We continue to operate a merchant build model in which we construct and sell purpose built rental communities. Our rental operations provide synergies to our homebuilding operations by enhancing our purchasing scale and providing opportunities for more efficient utilization of trade labor and absorption of our land and lot pipeline. We are focused on improving our operational execution and efficiencies in both our rental businesses.

During the last several quarters, we have been successful monetizing some of our single family rental communities prior to leasing stabilization. We plan to continue this strategy to improve the capital efficiency and returns of our rental operations. Our rental property inventory at December 31 was $3,000,000,000 which consisted of $728,000,000 of single family rental properties family rental properties and $2,300,000,000 of multifamily rental properties. We expect our total rental inventory to remain around the current level for the next several quarters. Jessica?

Forestar, our majority owned residential lot development company reported revenues $250,000,000 for the Q1 on 2,333 lots sold with pre tax income of $22,000,000 Forestar's owned and controlled lot position at December 31 was 106,000 lots. 64% of Forestar's owned lots are under contract with or subject to a right of first offer to D. R. Horton. $220,000,000 of our finished lots purchased in the Q1 were from Forestar.

Forestar had approximately $640,000,000 of liquidity at quarter end with a net debt to capital ratio of 29.5%. Our strategic relationship with Forestar is a vital component of our returns focused business model. Forestar's strong separately capitalized balance sheet, growing operating platform and lot supply position them well to capitalize on the shortage of finished lots in the homebuilding industry and to aggregate significant market share over the next several years. Mike?

Financial Services earned $49,000,000 of pretax income in the Q1 on $182,000,000 of revenues, resulting in a pretax profit margin of 26.7%. During the Q1, our mortgage company handled the financing for 79% of our homebuyers. Borrowers originating loans with DHI mortgage this quarter at an average FICO score of 724 and an average loan to value ratio of 89%. First time homebuyers represented 60% of the closings handled by our

Our capital allocation strategy is disciplined and balanced to sustain an operating platform that is disciplined and balanced to sustain an operating platform that produces compelling returns and substantial operating cash flows while positioning for growth. We have a strong balance sheet with low leverage and strong liquidity, which provides us with significant financial flexibility to adapt to changing market conditions and opportunities. During the 1st 3 months of the year, consolidated cash provided by operations was $647,000,000 We repurchased 6,800,000 shares of common stock during the quarter for $1,100,000,000 which reduced our outstanding share count by 4% from the prior year.

As our stock price declined during the quarter, we accelerated some of our planned share repurchases for the year. Our remaining share repurchase authorization at December 31 was $2,500,000,000 During the quarter, we also paid cash dividends of $0.40 per share, totaling $129,000,000 and our Board has declared a quarterly dividend at the same level to be paid in February. At December 31, we had $6,500,000,000 of consolidated liquidity consisting of $3,000,000,000 of cash and $3,500,000,000 of available capacity on our credit facilities. Debt at the end of the quarter totaled $5,100,000,000 with $500,000,000 of senior notes maturing in the next 12 months. Our consolidated leverage at December 31 was 17% and we plan to maintain our leverage around 20% over the long term.

At December 31, our stockholders' equity was $24,900,000,000 and book value per share was $78.53 up 13% from a year ago. For the trailing 12 months ended December 31, our return on equity was 19.1% and our consolidated return on assets was 13.4%. Jessica?

Looking forward to the Q2, we currently expect to generate consolidated revenues of $7,700,000,000 to $8,200,000,000 and homes closed by our homebuilding operations to be in the range of 20,000 to 20,500 homes. We expect our home sales gross margin for the 2nd quarter to be approximately 21.5% to 22% and our consolidated pre tax profit margin to be in the range of 13.7% to 14.2%. We have added guidance for consolidated pre tax profit margin to provide more meaningful insight to our overall profit expectations. As a result, we no longer plan to provide specific guidance for quarterly homebuilding SG and A percentage or our financial services pretax profit margin. Our results for the full year of fiscal 2025 will still largely be dependent on the strength of the spring.

For the year, we continue to expect to generate consolidated revenues of approximately $36,000,000,000 to $37,500,000,000 and homes closed by our homebuilding operations to be in the range of 90,000 to 92,000 homes. We now forecast an income tax rate for fiscal 2025 of approximately 24%. Based on our strong financial position, 1st quarter share repurchase activity and our expectation for increased cash flows from operations in fiscal 2025, we now plan to repurchase between $2,600,000,000 $2,800,000,000 of our common stock for the full year. We also continue to expect annual dividend payments of around $500,000,000 Paul?

In closing, our results and position reflect our experienced teams, industry leading market share, broad geographic footprint and focus on affordable product offerings. All of these are key components of our operating platform that that sustain our ability to produce strong returns, grow the business and generate substantial cash flows while continuing to aggregate market share. We have significant financial and operational flexibility and we plan to maintain our disciplined approach to capital allocation by providing compelling returns to our shareholders to enhance the long term value of our company. Thank you to the entire Doctor Horton family of employees, land developers, trade partners, vendors and real estate agents for your continued efforts and hard work. This concludes our prepared remarks.

Thank you. At this time, we'll be conducting a question and answer session. In the interest of time, today we ask that participants limit themselves to one question and one follow-up. And the first question today is coming from John Lovallo from UBS. John, your line is live.

Good morning, guys. Thanks for taking my question. Maybe starting off with just the gross margin outlook in the second quarter. So looks like sequentially going from 22.7% to 21.5% to 22%. Can you just help us with some of the moving pieces there?

I mean, is that really the expectation of just higher incentive levels? Or is there something that changes sequentially in terms of land, labor and materials?

Hey, John. Really, it's just a matter of incentive levels and what we're seeing in the market today. We've closed 53% of the or 53% we closed this quarter were sold in the quarter. So we think representative of kind of where we are. And looking throughout the quarter, our margin on closings in December was a little lower than the prior 2 months.

So based on the visibility we have today, what we're seeing in the market, we do expect a slight step down in margin on closings in our Q2.

Understood. And then in terms of deliveries, it looks like you guys beat by about 1,000 units versus the top end, still kind of maintain that 90,000 to 92,000 guide for the full year. How would you kind of characterize that? Was there anything pulled forward into the Q1 that you didn't expect? Or is this more just a little bit of conservatism, just not knowing what lies ahead as we move into the spring?

I think we're always a little concerned in the 4th calendar quarter, our 1st fiscal with the sales demand environment. We had the inventory and the teams did a great job of delivering that inventory to closings and putting people in homes. So we're really good about the execution across the board. And we're positioned to continue to deliver homes and we need to sell a fair number of homes this quarter that we're going to close this quarter, but we've got the inventory position to do so.

Yes. I think the beat really just reflects our continued improvement in build times and also the fact that we did sell and close 53% of our homes intra quarter, that's a little bit higher than it typically would be for a December quarter.

Thank you. The next question is coming from Alan Ratner from Zelman and Associates. Alan, your line is live.

Hey, guys. Good morning. Thanks for the detail so far. First question on the start pace. That's been trending lower here, which I think makes sense given the environment.

But 3 quarters in a row down year over year, just curious how you're thinking about the start pace going forward? Are you thinking about just given the improving cycle times bringing back some component of BTO back in the business? Or do you feel like just given that improving cycle time, you can more appropriately match the starts and sales going forward and still hit that full year guide?

Yes, Allen, I believe that just the improved cycle times that we have seen have allowed us to carry a lower number of inventory and that's why you've seen that sequential decline in our starts pace. It does allow us to sell earlier in the process because of our ability to turn these homes faster. So it does allow us to pick up a little broader scale on the buyer demographic or demand that's out there. I would expect on a go forward basis that you're going to see our starts be more in line with our sales basis. We just replenish the inventory that we have and start to build as we grow throughout the year.

Okay, great. Second question, we're day 1 here on the new administration, a lot of uncertainty about which direction some of the housing related policies might go in, whether we're talking about tariffs or integration or the future of the GSEs. I'm just curious how you guys are thinking about the next several years in the backdrop and whether you're changing any strategies or doing anything in anticipation of that?

Alongside everyone else, we're keeping an eye on what will occur. But we've been through a number of changes in administrations before and ultimately we are just focused on what buyers can afford. We're going to continue to open communities and try to price our product as affordably as possible to meet the needs of home buyers. There is a core need for shelter and for homes in our country and we're going to continue to do the best we can to supply it as at an affordable price as we can.

Thank you. The next question is coming from Stephen Kim from Evercore ISI. Stephen, your line is live.

Yes. Thanks very much guys. Appreciate the color. I was really encouraged to see the share repurchases you did this quarter. And it's a tough environment and the cash flow was impressive.

I think you had guided you're guiding now continuing to guide for cash flow above 2024. Can you give us a sense for how you're thinking about cash flow from operations relative to your combined share repurchases and dividends, because that I think might help dial in even a little bit better?

Sure. As we said in our scripted remarks, we've essentially distributed all of our cash flow from operations over the last 12 months to shareholders through repurchases and dividends. And so that would continue to be our general expectation as the substantial majority of our cash flow will go to repurchases and dividends. So our guide of the $2,600,000,000 to $2,800,000,000 of repurchases and the $500,000,000 of dividends is a good proxy for generally the range of where we would expect our cash flow from operations to be for the year.

Yes, that's impressive. Appreciate that. And then second question relates to your leverage longer term. I think you had indicated that your long term leverage goal is around 20%. Can

sense for like what kind of cash balance you guys would typically carry? So in other words, like what kind of net debt to cap do you think is a good target longer term for the company?

Sure. You're correct on the consolidated leverage target at or below 20%. Net, it's probably closer to approximately a 10%. Cash is going to vary though quarter to quarter. We typically have our heaviest cash balance or highest cash balance at the end of the fiscal year, call it roughly $3,000,000,000 And then the other quarters probably anywhere from $1,000,000,000 to $2,000,000,000

Got you. That's really encouraging. Okay. Thanks a lot guys. Appreciate it.

Thank you. The next question is coming from Carl Reichardt from BTIG. Carl, your line is live.

Thanks everybody. I want to talk about SG and A for a second. So talk Mike, I think it was you that talked about the growth rate in store count, the growth rate in lots and business at people you've added. We'll start to anniversary those growth rates and you've talked about sort of balancing your pace with margins and returns more so in going forward. So especially because you're not going to be guiding on this anymore, where do you sort of think your target SG and A ought to be?

And when do you expect to see some better leverage on those SG and A dollars? Is it going to be later this year? I know seasonally it will happen or will we start to see more the next couple of years?

As we commented, we have made investments. We've expanded our market count, increased our community counts. As you know as well, Carl, we are always focused on being as efficient as we can. So we would expect to see leverage overall in our SG and A. I think today as we look at fiscal 2025, we would expect our homebuilding SG and A percentage probably a little higher than it was in 2024.

But we certainly expect to leverage those investments as we move beyond 2025 into 2016 in future years. We will be very focused on maintaining as efficient of an infrastructure as we can to support our growth.

Thank you, Bill. And then, you about what I think 65% or I think you said of your total lot you have with finished lot option contracts from developers. Of the other 35%, can you talk about self developed lots and sort of what I call farmer options versus land banking transactions? And can you talk a little bit comment at all about your perspective on land bank transactions versus doing self development on your own books?

I think, Carl, the 65% we talked about at the closings in the quarter were on lots that were developed by a third party or Forestar. So that would be a lot development professional entity that is developing finished lots for us and that comes from deals they source, projects we source and assign to them and enter into buyback contracts kind of runs the gamut there. On the self developed the lots we the homes we closed on lots we self developed, those were all done on our balance sheet. And we continue to explore other accretive ways for capital efficiency and whether that's sort of that call it land banking development services, land banking process, we continue to evaluate and are looking to drive the most efficient capital usage in our lot pipeline.

We'll use land or lot bankers if we have an excess supply of finished lots that we're not ready for. But in terms of true traditional land development where you don't technically have a lot of risk transfer, we have little to know of that. We're 100% focused on risk transfer in the structures of our contracts.

Thank you. The next question is coming from Michael Rehaut from JPMorgan. Michael, your line is live.

Thanks. Good morning, everyone. Congrats on the results. First question, I'd love to circle back to, you had a comment in your prepared remarks around inventory levels. And the comment was supply still generally limited at affordable price points.

I'd love to dial in to that a little bit and see if there's any regional differentiation that you've seen across inventory levels and as a result perhaps which markets or regions that you operate in might be a little stronger versus a little weaker than the corporate average?

We have seen like has been reported some buildup in the Florida market and certainly in certain of the Florida markets a little more than others. The same in some of the Texas markets, but across generally across the footprint, we feel like inventory is in pretty good shape. We think that we and the other builders being pretty responsible in terms of watching the market and based on what the market brings, sizing their inventory in kind and the resale market is just going to continue to play out as people loosen up and eventually move and put their homes on the market.

Appreciate that. I guess secondly, your option lot percentage is 76%. I think you kind of maybe reached over the last year or 2 a high of 80%. I think in the past you've talked about most likely not going below a year's worth of own supply, maybe

you kind of stay in that year to year and

a half range. So as we look forward, I know you're talking still about improving inventory turns or build cycle times. I'm just wondering how you guys think about further improvement on capital efficiency. What are those levers that you look to move? And if there's any rethinking of where that option lot percentage or years owned supply might be able to go over the next 3 to 5 years?

Well, Mike, we our average is 76% across our operations. We do have markets that it's higher than that and we obviously have markets that it's lower than that as well. So we are still focused on continuing to ensure that we have a good network of 3rd party developers and we're utilizing Forestar as much as we can. So there still is opportunity for some of those markets that are at a lower option percentage to increase that. As Jessica did state earlier, we are very focused on risk transfer.

And so if we're going to pay for to use a third party to whether it's banking or developing lots, we're balancing what we're paying versus what the risk transfer and the capital efficiency benefits are. And so that's something we do continue to evaluate, as Mike said earlier, and we expect there will be opportunities for us to find ways to get more efficient with our lot pipeline going forward.

Thank you. The next question will be from Matthew Bouley from Barclays. Matthew, your line is live.

Good morning, everyone. Thank you for taking the questions. So the closings guidance, I think for the second half implies something like 52,000 homes closed or maybe 30% or so higher than the first half.

it's a little bit greater than normal or at least history. So I just want to get some color around your confidence in that step up in closings. It sounds like better cycle times, as you keep alluding to, for sure, is part of that. But just any other assumptions we should consider that you're making in that kind of step up there? Thank you.

No, I think we just we feel good about our efficiency today. We feel very good about our position of housing inventory as well as the lot inventory that we need to achieve those numbers. Of course, we're very early in the spring selling season and we need the spring to show up for us and to see the sales. But we believe that our operators are positioned to take advantage of the spring selling season and be in position to deliver on our guide of 92,000 homes for the year.

Okay, got it. Thank you for that. And then secondly, back on the gross margin, it sounded like the margin exited December a little lower than the prior 2 months, if I heard you correctly. So is that second quarter margin guide assuming that the margin on homes, I guess, sold and closed during Q2 would be similar to December or lower than December? And I guess conceptually at what point would you look to kind of more hold the line on the gross margin?

So we continue to look at traffic and demand we see in the neighborhoods to affect the pricing and the margin. Again, it's about maximizing the returns for us at a community level. But we entered the quarter in a roughly 6% mortgage environment and we exited the quarter in a 7% mortgage environment, which is what we kind of rolled into Q2 with. And we mortgage environment, which is what we kind of rolled into Q2 with. And so that's coloring our margin outlook as well, looking at perhaps being a bit lower than December as we work our way through Q2.

But it is the spring and it is historically a better selling season, and we're optimistic about the trends we'll see.

Thank you. The next question will be from Sam Reid from Wells Fargo. Sam, your line is live.

Awesome. Thanks so much. So maybe just to follow-up on the prior question here. Could you guys give us a sense as to what gross margin is embedded in your backlog on houses that you plan to close in the Q2. Kind of just curious for a rough number there.

And then maybe one other number on that point would be any sense as to what the bought down rate is in your backlog. I believe you provided that in past quarters. So just curious if we've got an updated number there.

Sure. With regard to the margin and backlog, that is one of the key items that we do have visibility to when we're preparing our guide. So our margin and backlog is relatively consistent with the range that we're providing here for Q2. And then in terms of prevailing rate that we're offering in the market today, generally between $4.99 to $5.99 range depending on the product is what's prevailing out there really for the last little while across our sales offices.

And there's really no meaningful change in that average rate this quarter versus last quarter.

No, that helps. And then maybe more of a higher level question on labor costs and stick and brick costs. It sounds like those are looking to hold in Q2, although correct me if I'm wrong, but maybe could you just talk a little bit more broadly about your ability to manage higher costs on these 2 buckets from some of these exogenous factors we're seeing, whether it's the new administration's tone on remigration or higher material costs on the back of natural disaster rebuild. Just trying to get your rough sense as to sort of how you'd manage through those, should we see inflation in labor and stick and brick? Thanks.

I think today, we are seeing good access to we have the labor we need and we have the materials we need. And that's what's allowed us to continue to see improvements in our cycle time. And given that, we've been able to hold pretty tight on pricing for both materials and labor. It has yet to play out to see what happens with this administration and what that impact is either through tariffs and or labor if it becomes a little more scarce. But we feel good about our positioning in the markets with our market share and our ability to maintain the labor and the parts and pieces we need and still don't expect to see much inflation in either of those over the next 12 months.

That's helpful. Thanks so much. I'll pass it on.

Thank you. The next question will be from Eric Bosshard from Cleveland Research. Eric, your line is live.

D.R. Horton (DHI) Q1 2025 Earnings Call Transcript

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