D.R. Horton, Inc. (DHI) Q1 2026 Earnings Call Transcript
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Overview
The earnings call highlights strong demand, strategic cost management, and positive market outlook, particularly for first-time homebuyers. The company maintains a balanced approach to inventory and starts, with plans to increase share repurchases. Despite some uncertainties, such as SG&A guidance, the optimistic guidance and strategic focus on affordability and community expansion suggest a positive stock price movement.
Key Financial Performance
Consolidated Pretax Income $798 million on $6.9 billion of revenues, with a pretax profit margin of 11.6%. This reflects a solid start to fiscal 2026 despite affordability constraints and cautious consumer sentiment.
Net Income $595 million on consolidated revenues of $6.9 billion. Earnings per diluted share were $2.03 compared to $2.61 in the prior year quarter, reflecting a decrease in profitability.
Home Sales Revenues $6.5 billion on 17,818 homes closed, compared to $7.1 billion on 19,059 homes closed in the prior year quarter. The decrease is attributed to lower home closings volume.
Average Closing Price $365,500, flat sequentially and down 3% year-over-year. This reflects pricing adjustments in response to market conditions.
Net Sales Orders Increased 3% from the prior year quarter to 18,300 homes, while order value remained unchanged at $6.7 billion. This indicates stable demand despite market challenges.
Cancellation Rate 18%, consistent with the prior year quarter and down from 20% sequentially, showing improved buyer commitment.
Gross Profit Margin on Home Sales Revenues 20.4%, up 40 basis points sequentially due to a recovery of prior period warranty costs. Excluding this benefit, the margin would have been 20%.
Homebuilding SG&A Expenses Decreased 1% from last year, but as a percentage of revenues, it increased to 9.7% from 8.9% due to lower home closings volume.
Home Starts 18,500 homes in the December quarter, up 27% sequentially from the fourth quarter, reflecting increased activity.
Rental Operations Revenues $110 million from the sale of 397 single-family rental homes, highlighting diversification in revenue streams.
Financial Services Pretax Income $58 million on $185 million of revenues, resulting in a pretax profit margin of 31.4%.
Forestar Revenues $273 million on 1,944 lots sold, with pretax income of $21 million, showcasing contributions from the lot development segment.
Homebuilding Cash Provided by Operations $498 million, contributing to consolidated cash provided by operations of $854 million, reflecting strong cash flow generation.
Share Repurchases 4.4 million shares repurchased for $670 million, reducing the outstanding share count by 9% from a year ago.
Stockholders' Equity $24 billion, down 4% from a year ago, with book value per share at $82.60, up 5% from a year ago.
Consolidated Liquidity $6.6 billion, consisting of $2.5 billion of cash and $4.1 billion of available capacity on credit facilities, ensuring financial flexibility.
Operating Highlights
New Home Sales: Net sales orders increased 3% year-over-year to 18,300 homes, with an average price of $364,000, flat sequentially and down 2% year-over-year. 64% of mortgage closings were to first-time homebuyers.
Rental Operations: Generated $110 million in revenue from the sale of 397 single-family rental homes. Rental property inventory was valued at $2.9 billion.
Market Share: Average number of active selling communities increased 12% year-over-year. Focused on gaining market share efficiently.
Lot Development: Homebuilding lot position at 590,500 lots, with 25% owned and 75% controlled through purchase contracts. Investments in lots, land, and development totaled $2 billion in Q1.
Operational Efficiency: Improved cycle times reduced inventory and increased efficiency. Median cycle time from start to close decreased by 2 weeks year-over-year.
Capital Efficiency: Generated $498 million in homebuilding cash from operations in Q1. Returned $4.4 billion to shareholders over the past 12 months through repurchases and dividends.
Incentives and Pricing Strategy: Increased sales incentives in Q1 to address affordability constraints and cautious consumer sentiment. Expect incentives to remain elevated in fiscal 2026.
Financial Flexibility: Maintained strong balance sheet with $6.6 billion in liquidity and low leverage at 18.8%. Plan to maintain leverage around 20% long-term.
Risk or Challenges
Affordability constraints and cautious consumer sentiment: New home demand is impacted by affordability constraints and cautious consumer sentiment, which could limit sales growth and revenue.
Elevated sales incentives: The company expects sales incentives to remain elevated in fiscal 2026, which could pressure profit margins depending on demand and mortgage interest rate changes.
Decline in home closings and revenues: Home closings and revenues have decreased compared to the prior year, which could impact overall financial performance.
Cancellation rates: The cancellation rate for the quarter was 18%, which, while consistent with the prior year, represents a potential risk to sales stability.
Market conditions and mortgage interest rates: Changes in market conditions and mortgage interest rates could significantly impact demand, sales incentives, and profit margins.
Inventory management: The company has 20,000 unsold homes in inventory, including 900 completed for over 6 months, which could lead to increased holding costs and reduced profitability.
Increased SG&A expense ratio: The SG&A expense ratio increased due to lower home closings volume, which could affect operational efficiency.
Economic volatility and uncertainty: The company acknowledges current economic volatility and uncertainty, which could impact its ability to achieve strategic objectives.
Guidance & Outlook
Revenue Projections: For the second quarter, consolidated revenues are expected to range between $7.3 billion and $7.8 billion. For the full fiscal year 2026, consolidated revenues are projected to be approximately $33.5 billion to $35 billion.
Home Closings: Home closings for the second quarter are expected to range between 19,700 and 20,200 homes. For the full fiscal year 2026, home closings are projected to be in the range of 86,000 to 88,000 homes.
Gross Margin: Home sales gross margin for the second quarter is expected to range between 19% and 19.5%. For the full fiscal year, gross margin levels will depend on demand, mortgage interest rates, and market conditions.
Profit Margin: Consolidated pretax profit margin for the second quarter is expected to range between 10.6% and 11.1%.
Operating Cash Flow: Operating cash flow for fiscal 2026 is forecasted to be at least $3 billion.
Stock Repurchases and Dividends: For fiscal 2026, the company plans to repurchase approximately $2.5 billion in common stock and pay around $500 million in dividends.
Market Conditions and Incentives: Sales incentives are expected to remain elevated throughout fiscal 2026, with levels dependent on demand, mortgage interest rates, and overall market conditions.
Home Starts and Inventory: Home starts in the second quarter are expected to be higher than the first quarter. The company will continue to manage inventory and start pace based on market conditions.
Shareholder Return Plan
Dividends Paid: During the first quarter, D.R. Horton paid cash dividends of $0.45 per share, totaling $132 million.
Future Dividend Plans: The Board has declared a quarterly dividend at the same level ($0.45 per share) to be paid in February.
Annual Dividend Forecast: For fiscal 2026, the company expects to pay dividend payments of around $500 million.
Share Repurchase in Q1: D.R. Horton repurchased 4.4 million shares of common stock for $670 million during the first quarter.
Annual Share Repurchase Forecast: The company plans to repurchase approximately $2.5 billion worth of common stock in fiscal 2026.
Outstanding Share Count: The outstanding share count is down 9% from a year ago due to repurchases.
Key Q&A
Earnings Word Cloud
DHI Transcript
The earnings call highlights strong demand, strategic cost management, and positive market outlook, particularly for first-time homebuyers. The company maintains a balanced approach to inventory and starts, with plans to increase share repurchases. Despite some uncertainties, such as SG&A guidance, the optimistic guidance and strategic focus on affordability and community expansion suggest a positive stock price movement.
The earnings call summary presents a mixed outlook. While there are positive indicators like strong order growth in certain regions and a significant share repurchase plan, concerns exist over elevated sales incentives, sticky lot costs, and reduced gross margins. The Q&A reveals management's strategic flexibility and confidence but highlights uncertainties in market conditions and costs. The lack of specific guidance on gross margins and incentives adds to the neutral sentiment. Given the absence of market cap data, a neutral prediction is appropriate, balancing positive long-term housing market outlook against current economic volatility.
The earnings call presented a mixed outlook. While financial metrics like homebuilding return and share repurchase plans are positive, concerns include increased incentives affecting margins, and unclear responses on cost impacts. The Q&A highlighted uncertainties in geographic demand and costs. With stable rental revenues but declining margins, the sentiment is balanced. The absence of market cap data suggests a cautious approach, leading to a neutral prediction for stock movement.
The earnings call presents mixed signals. While there are positive aspects like strong shareholder returns and a significant share repurchase plan, financial metrics such as EPS and revenue have declined year-over-year. The guidance for revenue is optimistic but offset by increased SG&A expenses and a decline in gross profit margins. The Q&A session did not reveal any major new risks or positive catalysts. Given the lack of a strong positive or negative catalyst, the overall sentiment is neutral, suggesting a stock price movement within -2% to 2% over the next two weeks.
DHI Slides
DHI Report
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