DHI · Q4 2025 Earnings

Cautious

D. R. Horton

Reported October 28, 2025

30-second summary

Q4 revenue of $9.7B beat the high end of the prior guide ($9.1–9.6B), but home sales gross margin came in at 20.0% reported (20.6% pro forma ex 60bps litigation) — below the 21.0–21.5% guided range — and consolidated pre-tax margin of 12.4% landed below the 13.6–14.1% guide. The forward setup is softer: Q1 FY2026 revenue guided to $6.3–6.8B, home sales gross margin to 20.0–20.5% (flat-to-slightly-up vs. Q4 reported, roughly -10 to -60bps vs. pro forma 20.6%), and consolidated pre-tax margin to 11.3–11.8% (down from 12.4% this quarter, -60 to -110bps). FY26 revenue guide of $33.5–35.0B straddles FY25's $34.25B actual, meaning the midpoint is essentially flat at -0.1% — and management explicitly flags the spring selling season as the swing factor on whether margins hold.

Headline numbers

EPS

Q4 FY2025

$3.04

Revenue

Q4 FY2025

$9.70B

-3.3% YoY

Gross margin

Q4 FY2025

21.6%

Operating margin

Q4 FY2025

12.4%

Key financials

Q4 FY2025

Metric	Q4 FY2025	YoY	Q3 FY2025	QoQ
Revenue	$9.70B	-3.3%	$9.20B	+5.4%
EPS	$3.04	—	$3.36	-9.5%
Gross margin	21.6%	—	23.9%	-230bps
Operating margin	12.4%	—	14.7%	-230bps

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q4 FY2025	$9.1 billion to $9.6 billion	$9.7 billion	+$0.1 billion above high end of guide	Beat
Homes Closed (homebuilding)	Q4 FY2025	23,500 to 24,000 homes	23,368 homes	-132 homes below low end of guide	Beat
Home Sales Gross Margin	Q4 FY2025	21% to 21.5%	21.6%	+0.1 percentage points above high end of guide	Met
Consolidated Pre-tax Profit Margin	Q4 FY2025	13.6% to 14.1%	13.8%	-0.2 to -0.3 percentage points below guidance midpoint	Missed

New guidance

Metric	Period	Guide	YoY
Revenue	Q1 FY2026	$6.3 billion to $6.8 billion	—
Homes Closed (homebuilding)	Q1 FY2026	17,100 to 17,600 homes	—
Home Sales Gross Margin	Q1 FY2026	20% to 20.5%	—
Consolidated Pre-tax Profit Margin	Q1 FY2026	11.3% to 11.8%	—
Homes Closed (homebuilding)	FY2026	86,000 to 88,000 homes	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2025	$33.7 billion to $34.2 billion	$34.25 billion	+$0.05 billion above high end	Raised
Homes Closed (homebuilding)	FY2025	85,000 to 85,500 homes	Not disclosed	—	Raised
Income Tax Rate	FY2026	approximately 24.0%	approximately 24.5%	+0.5 percentage points	Raised

Segment performance

Q4 FY2025

Segment	Q4 FY2025	YoY
Homebuilding	$8.564B	-4.3%
Rental	$0.805B	+14.3%
Forestar	$0.671B	+21.6%
Financial Services	$0.218B	-1.7%

Platform metrics

Q4 FY2025

Segment	Q4 FY2025
Homes Closed	23,368
Net Sales Orders	20,078 homes, $7.3 billion
Cancellation Rate	20%
Backlog Units	10,785 homes
Rental Property Sales	1,565 single-family, 1,815 multi-family units

Profitability

Q4 FY2025

Segment	Q4 FY2025
Homebuilding Pre-tax Profit Margin	11.7%
Return on Inventory (Annual)	20.1%

Other KPIs

Q4 FY2025

Segment	Q4 FY2025
Book Value Per Share	$82.15

Management tone

The Q4 home sales gross margin print confirmed the step-down narrative, and management is extending the caution another year. Q4 home sales gross margin came in at 20.0% reported (20.6% pro forma ex 60bps litigation), below the 21.0–21.5% guided range. The Q1 FY26 guide of 20.0–20.5% is essentially flat to slightly up vs. Q4 reported, and the consolidated pre-tax guide of 11.3–11.8% (down from 12.4% Q4) reflects both rental seasonality and lower SG&A leverage. From the call: "We anticipate our incentive levels to remain elevated in fiscal 2026 with both incentive levels and home sales gross margin for the full year dependent on the strength of demand during the spring selling season." This is no longer a one-quarter air pocket — it is a full-year framing.

The community count growth deceleration is now codified in a flat FY26 revenue guide. Management noted community count growth will moderate from double-digit toward mid-to-high single-digit. The FY26 revenue midpoint of $34.25B is dead flat against FY25's $34.25B actual. The homes-closed guide of 86,000–88,000 is only a ~2% volume bump over FY25's 84,863 closings, meaning ASP is the giveback. Management has stopped underwriting top-line growth in the near term.

Capital return framework has been quietly reset. FY25 guide ran $4.2–4.4B in buybacks (actual $4.3B); FY26 is guided to ~$2.5B against unchanged ≥$3.0B operating cash flow. Management framed FY25 as a unique year with excess liquidity and a depressed stock price enabling more aggressive repurchase; FY26 reverts to a baseline where buybacks plus dividends roughly match operating cash flow. The SK Builders tuck-in (150 homes, 400 lots, 1,300 lot controls in Greenville) signals management would rather buy proven inventory than build it speculatively. Anchor quote: "We recognize the current volatility and uncertainty in the economy, and we will continue to adjust to market conditions in a disciplined manner."

Cost framework is now explicit: 3–5% stick-and-brick reduction required to neutralize land inflation. This is the most quantitative cost-side disclosure in three quarters. Per the JPM exchange, Q4 construction costs were -1% YoY (FY25 full-year -1.5%) against lot costs +8% YoY per square foot. The gap between achieved and required cost-down is real and unbridged.

The litigation noise in Q4 was real but specifically flagged as non-recurring. Multiple large warranty settlements added 60bps to Q4 cost — pro forma home sales gross margin would have been 20.6% versus the 20.0% reported. Management explicitly stated these settlements were atypical in size and not expected to repeat. Worth tracking because it means Q1's 20.0–20.5% guide is broadly consistent with the pro forma Q4 read.

Recurring themes management leaned on this quarter:

Affordability constraints driving market conditionsDisciplined capital allocation and shareholder returnsElevated incentive spending environmentInventory management and cycle time optimizationMarket share aggregation strategyFinancial flexibility and strong balance sheet maintenance

Risks management surfaced:

Ongoing affordability constraints limiting demandMortgage interest rate volatility and sensitivityCautious consumer sentiment and economic uncertaintyElevated incentive cost pressures on marginsSpring selling season demand strength uncertainty

Q&A highlights

John Lavallo · UBS

Walk through gross margin progression from Q4 (20%) to Q1 guidance (20-20.5%), specifically requesting breakdown of incentives, labor, material costs, and warranty litigation impact.

Management clarified that the 60 bps litigation impact in Q4 is not expected to persist; pro forma Q4 margin was 20.6%. Q1 guidance reflects lower exit margins due to incentive levels and seasonal factors. Management expects starts to increase in Q1 to meet demand while leveraging improved cycle times and vendor cost negotiations.

Q4 reported margin: 20.0%, pro forma (excluding litigation): 20.6%Q1 guidance: 20-20.5% gross marginQ4 starts: 14,600 (intentionally reduced)Cycle time improvements enabling lower inventory carry

Stephen Kim · Evercore ISA

Request clarification on lighter consolidated pre-tax guidance for Q1 versus gross margin improvements; ask about rental segment and SG&A leverage implications.

Management attributed Q1 consolidated op margin pressure to rental being lighter in Q1 (due to high FY25 delivery volume shifting rental to H2) and reduced SG&A leverage from lower home building closings. Confirmed free cash flow conversion guidance of 10-11% of revenues on go-forward basis, consistent with FY25.

Rental segment expected to be softer in Q1; back-end heavy in 2026Free cash flow conversion: 10-11% of revenuesFY25 cash flow: 10-11% of revenuesFY26 guidance: ~$3B cash flow generation; $2.5B share repurchase + $500M dividends

Sam Reed · Wells Fargo

Deep dive on warranty expense normalization into Q1; request detail on lot costs and stick-and-brick assumptions embedded in Q1 guidance.

Management explained Q4 litigation spike resulted from several large settlements with atypical size that increased litigation reserve model factors; these are not expected to repeat. On costs, management expects lot costs to continue increasing incrementally but plans stick-and-brick savings offsets. Disclosed that 73% of Q4 closings received rate buy-downs (up from 72% prior quarter), with 3.99% rate heavily offered and mortgage rate in backlog now below 5%.

Q4 litigation: multiple large settlements (non-ordinary course size)Expected lot cost trend: incremental increases continuingRate buy-down penetration: 73% of Q4 closings (up 100 bps)3.99% mortgage rate widely offered in Q4

Michael Reholt · JP Morgan

Request modeling framework: if land costs rise mid-to-high single digits, what construction cost reduction is needed to keep gross margins flat without pricing help? Also, actual YoY construction cost change in Q4.

Management stated need for 3-5% construction cost reductions to offset mid-to-high single-digit land cost inflation while maintaining flat margins without pricing/incentive help. Disclosed Q4 construction costs were down 1% YoY and flat sequentially; FY25 full-year construction costs down 1.5% YoY. Noted vendors are engaged and willing to collaborate on cost reduction as start pace increases.

Required construction cost reduction to offset land inflation: 3-5%Q4 construction costs: -1% YoY, flat sequentiallyFY25 full-year construction costs: -1.5% YoYLot costs: +8% YoY on per-square-foot basis

Mike Dowell · RBC

Request clarity on spec inventory ramping strategy in Q1; how comfortable is management building specs given current market dynamics? Also, update on SK Builders (South Carolina) acquisition impact and M&A outlook.

Management stated preferred path is selling homes earlier in process to build backlog, but acknowledges need to increase starts including specs. Confident in managing spec count due to improved cycle times and delivery predictability. On SK Builders (closed October, post-quarter): acquired 150 homes in inventory, 400 lots, two-thirds of homes in construction sold, plus control of 1,300 additional lots in Greenville market. Positioning tuck-ins as means to accelerate market penetration while leveraging cost/capital structure advantages.

SK Builders acquisition: 150 homes in inventory, 400 lots, 1,300 additional lot controlsTwo-thirds of SK homes in construction are pre-soldSK transaction closed October 2024 (post-quarter)Strategy: tuck-ins to accelerate delivery into local markets

Answers to last quarter's watch list

Did Q4 home sales gross margin land inside the 21.0–21.5% guide? Missed at 20.0% reported (20.6% pro forma ex 60bps litigation), below the guided range. Status: Resolved negatively

Community count exit rate and FY26 setup. FY26 homes closed guide of 86,000–88,000 is only modestly above FY25's 84,863 actual closings, and management explicitly flagged community count growth moderating from double-digit toward mid-to-high single-digit. The flat $34.25B revenue midpoint validates the deceleration thesis. Status: Resolved negatively — confirmed the growth ceiling.

Backlog conversion and spec clearing. Backlog ended the year at 10,785 homes — DHI cleared the gap to meet 23,368 closings, with 73% receiving rate buy-downs (up 100bps QoQ) and 3.99% widely offered. Spec clearing required heavier incentive intensity, which is why Q1 home sales gross margin is guided flat-to-slightly-up at 20.0–20.5% off the depressed Q4 base. Status: Resolved negatively — backlog converted, but incentive cost is now structurally elevated entering FY26.

Share repurchase pace as confidence signal. FY26 buyback guide of ~$2.5B is roughly $1.8B below FY25's $4.2–4.4B guided pace. This is a clear signal management is preserving balance sheet flexibility rather than expressing confidence in the FY26 setup. Status: Resolved negatively

Forestar trajectory. +21.6% YoY revenue growth in Q4, sustaining the growth profile. Continues to function as the lot-supply hedge. Status: Resolved positively

What to watch into next quarter

Does Q1 FY26 home sales gross margin hold inside 20.0–20.5%, or break below 20%? A miss below 20.0% would confirm incentive pressure is accelerating beyond management's read and put the FY26 flat-revenue guide at risk.

Spring selling season order pace. Management has explicitly made spring the swing factor for FY26 margins. Watch net sales orders in Q2 FY26 — a YoY decline from the Q4 reading of 20,078 would force a mid-year FY guide cut.

Rate buy-down penetration trajectory. 73% in Q4 (up 100bps QoQ) on 3.99% offers — if this rises toward 80%+ in Q1, it signals demand is increasingly rate-locked and incentives are doing more work than management is currently modeling.

Construction cost trajectory vs. the 3–5% required. Q4 ran -1% YoY, FY25 full-year -1.5%. The gap to 3–5% required is real. Watch whether stick-and-brick deflation accelerates as start volumes ramp into Q1, or whether the gap is bridged via further incentive use.

Buyback pace in Q1. FY26 guide of ~$2.5B implies a ~$625M quarterly run-rate. A Q1 print well below that would suggest management is holding dry powder for further M&A (SK Builders-style tuck-ins) or anticipates a worse spring outcome than the guide implies.

Backlog floor. At 10,785 homes, backlog is thin relative to the Q1 closing guide of 17,100–17,600 — meaning a substantial portion must be sold-and-closed within Q1. Watch how cleanly this conversion runs and at what incentive cost.

Sources

D.R. Horton, Inc. Q4 FY2025 Press Release, filed with SEC, September 30, 2025 quarter-end. https://www.sec.gov/Archives/edgar/data/882184/000088218425000044/a9302025exhibit991.htm
D.R. Horton Q4 FY2025 earnings call (Q&A excerpts cited inline; UBS, Evercore ISI, Wells Fargo, JP Morgan, RBC).
Tapebrief Q3 FY2025 D.R. Horton brief (prior-quarter watch list and guidance baseline).

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