Homebuilder D.R. Horton (NYSE:DHI) announced better-than-expected revenue in Q3 CY2025, but sales fell by 3.2% year on year to $9.68 billion. On the other hand, the company’s full-year revenue guidance of $34.25 billion at the midpoint came in 1.7% below analysts’ estimates. Its GAAP profit of $3.04 per share was 7.6% below analysts’ consensus estimates.
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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: $45.28 billion
StockStory’s Take
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.
Looking ahead, D.R. Horton’s guidance reflects caution about ongoing affordability constraints, elevated incentive levels, and regionally uneven demand. The company expects its sales strategy to remain flexible, with product offerings, incentives, and inventory tailored to local market trends. CFO Bill Wheat stated, “Our guide of 20% to 20.5% [gross margin] would be down slightly from Q4 to Q1...and that just reflects the environment we’re in and the level of incentives that we’re seeing.” Management also emphasized the importance of spring selling season demand, mortgage interest rate movements, and operational discipline in determining the pace of starts and overall results for the coming year.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to persistent affordability pressures, elevated incentives, and careful management of community count and inventory levels, while also highlighting the impact of regional demand variation.
- Affordability Remains a Challenge: CEO Paul Romanowski noted that new home demand was “impacted by affordability constraints and cautious consumer sentiment,” prompting the company to increase sales incentives and tailor inventory levels to regional conditions.
- Incentives and Margin Pressure: CFO Bill Wheat disclosed that gross profit margin was reduced by higher-than-normal incentive costs and litigation expenses. Elevated incentives accounted for most of the margin decline, and management expects incentive levels to remain high as affordability continues to affect buyers.
- Community Count and Inventory Strategy: D.R. Horton increased its active selling communities by 13% year over year but intentionally moderated its starts pace to match market demand and reduce excess inventory. Management emphasized improved cycle times, enabling more efficient inventory turnover.
- Regional Market Differences: Performance varied significantly by geography, with Texas described as “choppy” and Florida facing some inventory absorption issues. In contrast, the Midwest and Mid-Atlantic regions were characterized by stability.
- Product Mix Shift to Affordability: The company continued to focus on smaller, lower-priced homes, with average selling prices declining. Management highlighted that D.R. Horton’s homes remain priced well below national averages, with the goal of broadening access to homeownership.
Drivers of Future Performance
Management’s outlook for the coming quarters hinges on the interplay between consumer affordability, persistent incentive use, and the pace of community and lot development, all set against a backdrop of regional demand variability.
- Spring Selling Season Critical: The company’s guidance is highly dependent on the strength of the spring selling season, which will determine the pace of starts, inventory management, and the need for continued promotional incentives. Management stated that increased community count positions the company to respond quickly if demand improves.
- Margin Headwinds from Costs: D.R. Horton expects lot costs to remain “sticky” with only modest relief anticipated in construction materials and labor. CFO Bill Wheat cautioned that maintaining gross margins will require offsetting rising lot costs with reductions in building costs, while incentives are likely to remain elevated to support sales.
- Macroeconomic Uncertainty: Management highlighted that consumer confidence, mortgage interest rate fluctuations, and job growth trends will all significantly impact demand. The company plans to remain agile, adjusting starts and inventory to avoid oversupply and respond to local market conditions.
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 $153.20, 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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