HORTON D R INC /DE/ Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Results Overview: Delivered solid results with earnings of $2.58 per diluted share, consolidated pre-tax income of $1.1 billion on $7.7 billion of revenues, and a pre-tax profit margin of 13.8%.
• Capital Efficiency: Focused on improving capital efficiency to generate operating cash flow and deliver returns to shareholders. Homebuilding pre-tax return on inventory for 12 months ended March 31 was 24.3%, ROE 17.4%, ROA 12.2%.
• Market Conditions: Spring selling season slower due to affordability constraints and declining consumer confidence. Net sales orders and homebuilding revenues decreased 15%. Home sales gross margin 21.8%, cancellation rate 16%.
• SG&A Expenses: Homebuilding SG&A expenses increased 4%, 8.9% of revenues, due to expansion of operating platform. Employee count up 5%, community count up 10%, market count up 6% to 126 markets.
• Inventory: 36,900 homes in inventory at quarter end, 23,500 unsold, 8,400 completed unsold, 1,200 aged over 6 months. Construction cycle times improved.
• Land Position: Homebuilding lot position at March 31 consisted of approximately 613,000 lots, 25% owned, 75% controlled via purchase contracts. Homebuilding investments in lots, land, and development totaled $2 billion.
• Rental Operations: Operate merchant-build model, monetizing single-family rental communities for higher returns.
• Forestar Relationship: Vital component of returns-focused model, $270 million finished lots purchased from Forestar in Q2, $790 million liquidity, net debt-to-capital 29.8%.
• Financial Services: Mortgage company handled 81% of homebuyers, average FICO 723, LTV 89%, first-time buyers 63%.
• Capital Allocation: Strong balance sheet, Moody's upgraded to A3, $5.8 billion liquidity, $6.5 billion debt, $24.3 billion stockholders' equity, $78.82 book value per share. $4 billion share repurchase guide for fiscal 2025, ~$500M dividends.

Segment Performance

• Homebuilding: In the second quarter, home sales revenues were $7.2 billion from 19,276 homes closed. Consolidated pre-tax income was $1.1 billion on $7.7 billion of revenues with a pre-tax profit margin of 13.8%. The homebuilding pre-tax return on inventory for the 12 months ended March 31 was 24.3%. Return on equity was 17.4% and return on assets was 12.2%. Net sales orders decreased 15% from the prior year to 22,437 homes, and order value decreased 17% to $8.4 billion. The home sales gross margin was 21.8%.
• Rental operations: Generated $23 million of pre-tax income on $237 million of revenues from the sale of 519 single-family rental homes and 300 multi-family rental units.
• Forestar: Reported revenues of $351 million for the second quarter on 3,411 lots sold with pre-tax income of $41 million. Forestar's owned and controlled lot position at March 31 was 105,900 lots, and $270 million of finished lots purchased in the second quarter were from Forestar.
• Financial Services: Earned $73 million of pre-tax income in the second quarter on $213 million of revenues, with a pre-tax profit margin of 34.3%. The mortgage company handled the financing for 81% of homebuyers, with first-time homebuyers representing 63% of the closings.

Guidance

• Third Quarter: Expect consolidated revenues in the range of $8.4 billion to $8.9 billion, homes closed by homebuilding operations in the range of 22,000 to 22,500 homes, home sales gross margin in the range of 21% to 21.5%, and consolidated pre-tax profit margin in the range of 13.3% to 13.8%.
• Full Year: Expect consolidated revenues of approximately $33.3 billion to $34.8 billion, homes closed by homebuilding operations in the range of 85,000 to 87,000 homes, income tax rate ~24%, $4 billion share repurchase in fiscal 2025, and annual dividend payments around $500 million.

Risks

• Economic Volatility: Significant current volatility and uncertainty in the economy affecting market conditions.
• Tariffs: Noise and uncertainty around tariffs impacting supply chain and costs.
• Land Costs: Land and lot costs up 3% sequentially, 10% year-over-year, with no significant relief expected.
• Property Insurance: Rising property insurance rates potentially affecting cancellations and market conditions.

Question and Answer

• **Q: Stephen Kim asked about the company's focus on volume vs returns and key metric for investors.

A: Paul Romanowski mentioned balancing pace and price, focus on return-based business and consistent operating cash flows. Bill Wheat added combination of returns and consistent cash flows. Jessica Hansen noted position to remain largest builder long-term.**

• **Q: John Lovallo asked about third quarter gross margin guidance and tariffs impact on suppliers.

A: Michael Murray said incentives flat could hit higher end of margin range, and Paul Romanowski noted uncertainty in tariffs, but suppliers have responded to supply chain challenges, and company positioned to hold costs.**:

• **Q: Alan Ratner asked about start pace, spec count, and 2026 growth.

A: Paul Romanowski said starts to accelerate into third quarter, cycle times efficient, positioned to respond to market, and Michael Murray said no material price increase impact seen yet from tariffs.**:

• **Q: Carl Reichardt asked about performance difference in entry-level vs other communities.

A: Michael Murray said strong demand for first-time homebuyers, affordability pressure, and good demand for move-up buyers, with markets supply-constrained performing well.**:

• **Q: Sam Reid asked about community count plans for 2026 and geographic cuts.

A: Jessica Hansen said community count dependent on local market conditions, and Paul Romanowski said concentration in Texas and Florida, with newer markets seeing stable activity.**:

• **Q: Michael Rehaut asked about incentives vs market and Canadian lumber exposure.

A: Paul Romanowski and Jessica Hansen discussed community-by-community incentive management and ~20% Canadian lumber exposure, with tariffs impact not seen yet.**:

• **Q: Eric Bosshard asked about tariffs impact on cost and Forestar relationship.

A: Paul Romanowski said combination of factors to manage tariffs, and Michael Murray said working with Forestar to adjust lot delivery timeframes.**:

• **Q: Matthew Bouley asked about traffic, delivery outlook, and land spend.

A: Paul Romanowski said good traffic, Michael Murray said starts accelerating with better construction times, and Bill Wheat said land spend adjusts based on sales pace.**:

• **Q: Rafe Jadrosich asked about land cost, relief, and SG&A leverage.

A: Bill Wheat said land costs up 3% seq, 10% yoy, no relief seen, and Bill Wheat said SG&A leverage expected with volume growth.**:

• **Q: Trevor Allinson asked about pace vs margin and land development spend.

A: Michael Murray said adjust based on market, and Bill Wheat said land spend adjusts with lower volumes, working with developers to extend lot takedown schedules.**:

• **Q: Anthony Pettinari asked about regional closings growth and labor inflation.

A: Michael Murray said north and east regions with supply constraints, and Michael Murray said labor inflation assumed flat with good labor base.**:

• **Q: Ken Zener asked about returns, inventory units, and EBIT.

A: Michael Murray said inventory units expected flat, turns to improve, and Bill Wheat said focus on community-by-community balance of pace and margin.**:

• **Q: Jay McCanless asked about finished specs, cancellation rate, and insurance impact.

A: Bill Wheat said starts to increase, cycle times improving, and Michael Murray said low cancellation rate due to committed buyers, and insurance impact not significant yet.**:

• **Q: Susan Maklari asked about rental segment outlook and share buyback.

A: Paul Romanowski said rental segment performing well with successful monetization, and Bill Wheat said $4B share repurchase guide, disciplined approach, and small M&A opportunities.**