D.R. Horton (NYSE:DHI) reported lower third-quarter earnings from a year earlier as affordability pressures and cautious consumer sentiment continued to weigh on new-home demand, though the company said it maintained margins above its prior expectations through cost controls and disciplined pricing.
The Arlington, Texas-based homebuilder reported fiscal third-quarter earnings of $3.20 per diluted share, down from $3.36 per share in the prior-year quarter. Net income was $905 million on consolidated revenue of $9.2 billion. Consolidated pre-tax income totaled $1.2 billion, resulting in a pre-tax margin of 13.3%, according to President and Chief Executive Officer Paul Romanowski.
Chief Operating Officer Mike Murray said that average closing price was about $155,000, or 30%, below the average price of new homes in the U.S., reflecting the company’s continued focus on affordability. Romanowski said 65% of the company’s mortgage closings during the quarter were to first-time buyers.
Orders Flat as Cancellations Rise
Net sales order value totaled $8.4 billion on 23,084 homes sold, both essentially flat with the year-earlier quarter, Chief Financial Officer Bill Wheat said. The cancellation rate increased to 20%, compared with 17% in the prior-year period and 16% in the previous quarter, though management said the rate remained within the company’s normal historical range.
Romanowski said affordability constraints and cautious consumer sentiment continued to affect demand. In response to an analyst question about whether demand was stabilizing, he said sales were “relatively in line with normal seasonality” but softened after the company’s April earnings call. He said D.R. Horton still sees “plenty of buyers” in its sales offices, but buyers need more confidence in the broader economy and in their ability to complete a purchase.
Management said the company lowered its full-year delivery outlook because third-quarter sales were below internal expectations. Romanowski said D.R. Horton had expected better-than-normal seasonality early in the quarter, but demand softened as the quarter progressed. He said the company was “happy with the trade-off” of achieving a stronger gross margin at a lower sales volume level.
Margins Supported by Lower Construction Costs
D.R. Horton’s home sales gross margin was 20.7% in the quarter, above the high end of its guidance range. Senior Vice President of Communications Jessica Hansen said the margin reflected lower “stick and brick” costs and slightly lower incentives than in the second quarter. She said incentives are expected to remain elevated relative to historical levels.
On a per-square-foot basis, home sales revenue and lot costs were flat sequentially, while stick-and-brick costs fell 2%. Year over year, home sales revenue per square foot declined 3%, stick-and-brick costs declined 5% and lot costs increased 5%.
During the question-and-answer portion of the call, Murray said the company’s largest savings came from framing, including labor, and that costs declined across all major categories for homes closed in the third quarter. He said management expects those savings to hold at least into the fourth quarter, though lumber could become a modest headwind in fiscal 2027.
The company guided for fourth-quarter home sales gross margin of 20.5% to 21%, roughly flat with the third quarter. Wheat said the company’s current visibility points to a “relatively stable margin” going into the fourth quarter, while acknowledging uncertainty because many sales and closings occur within the same quarter.
Inventory and Land Position Remain Areas of Focus
D.R. Horton started 23,900 homes in the third quarter and ended the period with 38,000 homes in inventory, down 1% sequentially and year over year. Of those homes, 23,300 were unsold and 7,600 were completed. The company said 600 completed homes had been unsold for more than six months.
Romanowski said the company’s median cycle time from home start to home close improved by about three weeks from a year earlier. He said improved cycle times allow D.R. Horton to hold less housing inventory and turn it more efficiently. The company expects fourth-quarter starts to be lower than third-quarter starts and said it will continue to manage starts based on market conditions.
At June 30, D.R. Horton’s homebuilding lot position consisted of about 570,000 lots, with 22% owned and 78% controlled through purchase contracts. Murray said the company remains focused on building more homes on lots developed by Forestar or third parties, an approach he said enhances capital efficiency and flexibility. The company’s owned lot position was down 13% from a year earlier.
During the quarter, D.R. Horton invested $2.1 billion in lots, land and development, including $1.5 billion for finished lots, $520 million for land development and $75 million for land acquisition.
Rental, Financial Services and Forestar Results
The company’s rental operations generated $31 million of pre-tax income on $266 million of revenue, reflecting sales of 601 single-family rental homes and 339 multifamily rental units. Rental property inventory totaled $3 billion at quarter end, including $2.7 billion of multifamily rental properties and $321 million of single-family rental properties.
Financial services operations posted pre-tax income of $70 million on $221 million of revenue, producing a pre-tax margin of 31.9%.
Forestar, D.R. Horton’s majority-owned residential lot development company, reported revenue of $407 million on 3,659 lots sold and pre-tax income of $49 million. Forestar’s owned and controlled lot position totaled 92,000 lots, and 66% of its owned lots were under contract with or subject to a right of first offer to D.R. Horton. D.R. Horton purchased $360 million of finished lots from Forestar during the quarter.
Cash Flow, Buybacks and Guidance
D.R. Horton ended the quarter with $6.1 billion of consolidated liquidity, including $2.1 billion of cash and $4 billion of available credit facility capacity. Total debt was $7.1 billion, and consolidated leverage was 23%. Wheat said the company continues to target leverage of about 20% over the long term.
During the third quarter, D.R. Horton paid $127 million in cash dividends, or $0.45 per share, and repurchased 4.2 million shares for $616 million. The company said its outstanding share count declined 6% from a year earlier. Book value per share increased 5% year over year to $84.85.
For the fourth quarter, D.R. Horton expects consolidated revenue of $8.8 billion to $9.3 billion and home closings of 22,500 to 23,000. The company expects consolidated pre-tax margin of 12.3% to 12.8%.
For fiscal 2026, the company now expects consolidated revenue of about $32.5 billion to $33 billion and home closings of 83,800 to 84,300. It also expects an income tax rate of about 25%, operating cash flow of at least $3 billion, common stock repurchases of approximately $2.5 billion and dividend payments of around $500 million.
Romanowski said D.R. Horton will remain “agile and disciplined” amid volatility and uncertainty in the broader economy while focusing on affordable price points, market share growth and shareholder returns.
About D.R. Horton (NYSE:DHI)
D.R. Horton, Inc is a national homebuilding company that designs, constructs and sells new residential properties across the United States. The company’s core operations focus on building single-family detached homes, townhomes and condominiums for a range of buyer segments. In addition to home construction and sales, D.R. Horton provides complementary services through subsidiaries that support the mortgage, title and closing processes for its customers, enabling integrated transaction workflows from inventory development to home delivery.
Founded in 1978 by Donald R.
