D.R. Horton’s third quarter results were met with a negative market response as management acknowledged that affordability challenges and uncertain consumer sentiment continued to weigh on demand. The company leaned into higher sales incentives and adjusted its inventory to align with market realities, resulting in a sequential increase in net sales orders but a decline in operating margins. CEO Paul Romanowski described the environment as “choppy,” noting that the quarter required balancing pace, price, and incentives to maintain absorption. Management openly discussed the need to respond to localized market softness and persistent affordability headwinds.
Is now the time to buy DHI? Find out in our full research report (it’s free for active Edge members).
D.R. Horton (DHI) Q3 CY2025 Highlights:
- Revenue: $9.68 billion vs analyst estimates of $9.42 billion (3.2% year-on-year decline, 2.7% beat)
- EPS (GAAP): $3.04 vs analyst expectations of $3.29 (7.6% miss)
- Adjusted EBITDA: $1.15 billion vs analyst estimates of $1.37 billion (11.9% margin, 15.5% miss)
- Operating Margin: 11.6%, down from 15.9% in the same quarter last year
- Backlog: $4.12 billion at quarter end, down 13.6% year on year
- Market Capitalization: $42.72 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From D.R. Horton’s Q3 Earnings Call
- John Lovallo (UBS) asked about the sustainability of gross margins given persistent incentive costs. CFO Bill Wheat explained that litigation expenses were unusual in Q3 and not expected to repeat, but incentive levels will likely remain high due to market conditions.
- Stephen Kim (Evercore ISI) pressed for details on cash flow conversion and the seasonality of profitability. Wheat affirmed that D.R. Horton expects cash flow as a percentage of revenue to stay in the 10–11% range, with rental contributions more backloaded in the year.
- Alan Ratner (Zelman & Associates) questioned whether order growth signaled demand improvement or was driven by higher incentives. COO Michael Murray responded that incentives increased as expected, and starts were intentionally moderated to match sales and manage inventory.
- Matthew Bouley (Barclays) focused on the trade-off between volume growth and margin compression. Murray stated that community and lot growth provides flexibility to ramp volume, but the company would not sacrifice margins to unsustainable levels.
- Anthony Pettinari (Citi) queried about lower buyback guidance and regional order strength. Wheat explained that share repurchases will be governed by cash flow, and Murray identified Florida as facing inventory absorption challenges within the Southeast region.
Catalysts in Upcoming Quarters
In the quarters ahead, the StockStory team will be watching (1) the pace of starts and inventory build as the company prepares for the spring selling season, (2) margin stabilization efforts amid elevated incentives and persistent lot cost inflation, and (3) the effectiveness of tailoring product mix and incentives to local market conditions—especially in regions like Texas and Florida. Adjustments in operational efficiency and buyer sentiment will remain crucial signposts for D.R. Horton’s execution.
D.R. Horton currently trades at $144.75, down from $158.81 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).
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