D.R. Horton Q4 Earnings Call Highlights

Key Points

• Housing demand weakened: Fourth-quarter net sales orders fell 7% year over year, while cancellations rose to 23% as higher mortgage rates made buyers more cautious. D.R. Horton increased rate buydowns and other incentives to support demand.
• Margins came under pressure: Fourth-quarter home sales gross margin declined to 19.5% due to market conditions, elevated incentives, higher costs and litigation expenses. The company expects first-quarter fiscal 2027 gross margin of 18% to 18.5%.
• 2027 outlook includes lower activity and major shareholder returns: D.R. Horton forecasts fiscal 2027 revenue of $30 billion to $32 billion and 79,000 to 84,000 home closings, while planning approximately $3 billion in stock repurchases and $500 million in dividends.

D.R. Horton NYSE: DHI reported fourth-quarter fiscal 2026 net income of $741.8 million, or $2.67 per diluted share, on consolidated revenue of $9.4 billion, as higher mortgage rates and cautious consumer sentiment weighed on housing demand late in the quarter.

For the full fiscal year, the homebuilder generated net income of $2.9 billion, or $10.11 per diluted share, on revenue of $33 billion. Consolidated pre-tax income totaled $3.9 billion for the year, representing an 11.8% pre-tax profit margin.

President and CEO Paul Romanowski said D.R. Horton completed its 25th consecutive year as the nation’s largest builder by volume. The company’s homebuilding and rental operations provided homes to more than 89,000 families during the year, including approximately 43,500 first-time homebuyers.

Demand Weakens as Rates Rise

Fourth-quarter home sales revenue totaled $8.4 billion from 22,915 homes closed. The average closing price was $365,600, up 1% sequentially and unchanged from a year earlier. Romanowski said the company’s average closing price was about $135,000, or 27%, below the average new-home price in the U.S.

Net sales orders declined 7% year over year to 18,619 homes, while order value fell 9% to $6.6 billion. The average net order price was $356,600, down 2% both sequentially and from the prior-year period. The cancellation rate rose to 23%, compared with 20% in both the preceding quarter and the year-earlier quarter.

Romanowski said demand “came under increased pressure” as mortgage rates rose sharply during the quarter. While the company continued to see prospective buyers visiting sales offices, management described those customers as more cautious and tentative in their decision-making.

The company said it increased the mortgage rates offered through rate buydowns as market rates moved higher, while generally maintaining a buydown rate about 1.5 percentage points below market rates. Management said buyers using D.R. Horton’s mortgage company continued to use rate buydowns at a high rate, with high-80% to low-90% of those buyers receiving one.

Margins Face Pressure From Incentives and Costs

Home sales gross margin was 19.5% in the fourth quarter, down 120 basis points from the June quarter and below the company’s expectations. Jessica Hansen, senior vice president of communications, said 80 basis points of the sequential decline reflected more difficult market conditions that limited D.R. Horton’s ability to offset higher costs through pricing. Above-normal litigation costs accounted for the remainder.

The company said its typical warranty and litigation expense affects gross margin by roughly 40 to 50 basis points, compared with an 80-basis-point impact in the fourth quarter. Stick-and-brick costs and home sales revenue per square foot each increased 1% sequentially, while lot costs rose 4%.

D.R. Horton expects first-quarter fiscal 2027 home sales gross margin of 18% to 18.5%, reflecting lower average sales prices and higher incentive costs. Management expects incentives to remain elevated in fiscal 2027, although Romanowski said the first-quarter margin outlook was indicative of current conditions rather than a longer-term normalized margin level.

The company plans to manage pricing, incentives and sales pace at the community level. Romanowski said the mix of incentives may include mortgage-rate buydowns, included home features or price reductions depending on local market conditions.

Inventory and Lot Strategy

D.R. Horton reduced starts to 13,100 homes in the September quarter, down 45% sequentially and 10% year over year, in an effort to better align inventory with demand. Total inventory at Sept. 30 was 28,200 homes, down 26% sequentially and 5% from a year earlier. The company had 17,700 unsold homes, including 8,800 completed homes.

The company ended the year with a lot position of 571,000 lots, including 23% owned and 77% controlled through purchase contracts. Its owned lot position declined 11% from a year earlier to 131,000 lots, representing roughly a one-and-a-half-year supply.

Management said 70% of fourth-quarter closings occurred on lots developed by Forestar or third parties, up from 65% a year earlier. Romanowski said the company expects land and lot pricing to adjust slowly, but anticipates future development activity could occur at better pricing as land residuals reset to current market conditions.

Rental Impairment and Fiscal 2027 Outlook

The rental operations segment reported a fourth-quarter pre-tax loss of $25.3 million, including $91.4 million of inventory impairment charges on nine completed multifamily projects. Romanowski said the charges reflected lower expected sales prices following the recent increase in interest rates.

For fiscal 2027, D.R. Horton expects rental inventory to remain at or below its current level. The company said its single-family rental business has shifted to a forward-sale model, with an investor generally in place before a project begins, and it expects returns in that portion of the rental operation to improve over time.

For fiscal 2027, D.R. Horton forecast consolidated revenue of approximately $30 billion to $32 billion and homebuilding closings of 79,000 to 84,000 homes. For the first quarter ending Dec. 31, the company expects revenue of $5.9 billion to $6.4 billion, homebuilding closings of 15,500 to 16,500 homes, and a consolidated pre-tax profit margin of 7% to 8%.

The company expects to generate about $3.5 billion of operating cash flow in fiscal 2027 and plans to repurchase approximately $3 billion of common stock while paying about $500 million in dividends. Its board raised the quarterly dividend 11% to $0.50 per share.

During fiscal 2026, D.R. Horton generated $3.5 billion of operating cash flow and returned $4.1 billion to shareholders through $3.6 billion of stock repurchases and $513 million of dividends. The company ended the year with $7.2 billion of consolidated liquidity and $6.1 billion of debt.

About D.R. Horton (NYSE:DHI)

D.R. Horton, Inc is a residential construction company that builds and sells single-family detached and attached homes in the United States. Its offerings include entry-level, move-up, luxury and active-adult housing, serving a range of homebuyers through brands such as D.R. Horton, Express Homes, Emerald Homes and Freedom Homes.

The company's operations also include land acquisition and development, home financing and title services. Through subsidiaries and affiliated businesses, D.R.

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