The paragraph is a transcript from the First Quarter 2025 Earnings Conference Call for D.R. Horton, the largest U.S. homebuilder. The call is in listen-only mode, followed by a Q&A session. Jessica Hansen, Senior Vice President of Communications, emphasizes that the call contains forward-looking statements subject to risks and uncertainties, as outlined in D.R. Horton's SEC filings. The earnings release is available on the company's website, with plans to file a 10-Q soon. Updated investor presentations highlighting the company's strategy and performance will also be posted online. The call is then turned over to Paul Romanowski, President and CEO.

In the first quarter, D.R. Horton reported strong financial results, with earnings of $2.61 per share and a pre-tax income of $1.1 billion on $7.6 billion in revenue. The company focused on capital efficiency, achieving a pre-tax return on inventory of 26.7% and a return on equity of 19.1%. Despite a slight decrease in net sales orders, the company generated $647 million in operating cash flow and returned $1.2 billion to shareholders. Housing demand remains favorable, but affordable home supply is limited. D.R. Horton is using incentives like mortgage rate buy downs and smaller floor plans to address affordability and spur demand. The company is strategically balancing sales pace, pricing, and inventory for optimal returns entering the spring season.

In the first quarter of fiscal 2025, the company reported a decrease in earnings per share and home sales revenues compared to the previous year. Their net sales orders and order value also saw slight declines. The cancellation rate improved, while the average selling price of homes and gross profit margin experienced a slight drop due to higher incentive costs. Despite these challenges, the company remains optimistic about their position in the market, citing improvements in construction cycle times and available lots.

The paragraph discusses the company's financial and operational performance in the first quarter. They expect lower home sales gross margins in the second quarter due to rising incentive costs. The overall financial performance for fiscal year 2025 will depend on market demand and interest rates. Homebuilding SG&A expenses increased by 6% from the previous year, attributed to expanding the operating platform, including growth in employee, community, and market counts. The company started 17,900 homes in the December quarter and ended with a decrease in inventory to 36,200 homes, of which 25,700 are unsold. However, construction cycle times have improved, enabling faster housing inventory turnover, with a focus on managing homes and inventory in line with market conditions.

The paragraph discusses the homebuilding and rental operations of a company as outlined by Michael Murray and Paul Romanowski. At the end of December, the company had access to approximately 640,000 lots, with a significant portion controlled through purchase contracts. The company emphasizes building homes on lots developed by others to boost capital efficiency and flexibility. Recent investments in lots and land amounted to $2.4 billion. In rental operations, the company generated $12 million in pretax income from selling 311 single-family and 504 multi-family units, although profits were affected by capital market uncertainty and high interest rates. They utilize a merchant build model for rental communities, aiming for improved operational execution and efficiencies to enhance capital efficiency and returns, and have successfully monetized some rental communities before full leasing.

The paragraph details the financial performance and strategic operations of D.R. Horton and its majority-owned subsidiary, Forestar. As of December 31, D.R. Horton's rental property inventory was valued at $3 billion, with plans to maintain this level in the coming quarters. Forestar generated $250 million in revenue from the sale of 2,333 lots in Q1, with a pretax income of $22 million. It has 106,000 lots, most under contract with D.R. Horton, and ended the quarter with $640 million in liquidity and a net debt-to-capital ratio of 29.5%. This relationship supports D.R. Horton's business model, given the shortage in finished lots. Financial Services earned $49 million in pretax income on $182 million revenue, handling 79% of homebuyer financing, with borrowers averaging a 724 FICO score. The strategy emphasizes balanced capital allocation to ensure growth and strong cash flows.

The company reports strong financial performance and flexibility, highlighted by a robust balance sheet with low leverage and high liquidity of $6.5 billion. In the first quarter, it generated $647 million in operating cash, repurchased 6.8 million shares for $1.1 billion, and paid $129 million in dividends. With $2.5 billion in remaining share repurchase authorization, it maintains a consolidated debt of $5.1 billion and plans to keep leverage around 20%. At the end of the quarter, stockholders' equity was $24.9 billion. Looking ahead to Q2, the company anticipates revenues of $7.7 billion to $8.2 billion, closing 20,000 to 20,500 homes, with a home sales gross margin of 21.5% to 22% and a pretax profit margin of 13.7% to 14.2%.

The paragraph provides an update on the company's financial guidance and expectations for fiscal 2025. It mentions that consolidated pretax profit margin guidance has been added to offer better insight into profit expectations, while specific quarterly guidance on homebuilding SG&A percentage and financial services pretax profit margin will no longer be provided. The company anticipates consolidated revenues between $36 billion and $37.5 billion and expects to close 90,000 to 92,000 homes. An income tax rate of approximately 24% is forecasted for fiscal 2025. The company plans to repurchase $2.6 billion to $2.8 billion of common stock and continue annual dividend payments of around $500 million. Paul Romanowski highlights their strong financial and operational position, market share, and plans to provide returns to shareholders. The company expresses gratitude to its employees and partners and welcomes questions.

In the paragraph, John Lovallo from UBS asks about the changes in gross margin outlook for the second quarter, questioning if higher incentive levels or issues with land, labor, and materials are the causes. Paul Romanowski responds, explaining that the margin decrease is mainly due to incentive levels and indicates a slight decline in margin is expected in the second quarter. Lovallo also inquires about the delivery of units exceeding expectations by 1,000 and whether anything was pulled forward into the first quarter. Michael Murray replies, attributing the success to inventory management and team execution, while maintaining a cautious stance due to market uncertainties.

The paragraph discusses a company's strategy to continue delivering homes efficiently, with a focus on improving build times and managing inventory effectively. Jessica Hansen mentions that they have sold and closed on 53% of their homes within the quarter, which is slightly higher than usual for December. Alan Ratner questions the company's decision-making regarding the pace of starting new projects, given the current environment and improving cycle times. Paul Romanowski responds by explaining that improved cycle times have allowed the company to maintain lower inventory levels and adjust their start pace to align more closely with sales pace. This strategy is expected to help them meet their sales goals throughout the year by replenishing inventory as needed.

The paragraph discusses a conference call where Bill Wheat and Alan Ratner address questions about the impact of a new administration on housing-related policies. Wheat emphasizes the company's focus on affordable housing and adapting to changes by continuing to meet home buyers' needs. Stephen Kim from Evercore ISI appreciates the company's recent share repurchases and strong cash flow, and asks about future cash flow management concerning share repurchases and dividends. Wheat responds that the company intends to continue distributing most of its cash flow from operations to shareholders through repurchases and dividends.

The paragraph discusses a company's financial strategies, including repurchase and dividend plans, cash flow expectations, and leverage goals. Stephen Kim confirms the impressive guidance of $2.6 billion to $2.8 billion in repurchases and $500 million in dividends, aligning with the annual cash flow estimate. The company targets long-term leverage around 20%, with a net leverage goal closer to 10%. Jessica Hansen mentions that cash balances vary, with the highest at the fiscal year-end, approximately $3 billion, and between $1 billion and $2 billion in other quarters. Carl Reichardt asks about SG&A targets, and Bill Wheat refers to past investments, suggesting that leverage improvements might be seen seasonally or in the next few years.

The paragraph discusses the company's approach to expanding its market and community presence while maintaining efficiency, particularly in terms of selling, general, and administrative expenses (SG&A). They anticipate a slight increase in SG&A for fiscal year 2025 compared to 2024 but expect to leverage these investments in the following years. Carl Reichardt inquires about the company's strategy regarding land acquisition, specifically the balance between finished lot option contracts and self-developed lots. Michael Murray explains that 65% of their closed lots were developed by third parties or Forestar, while the rest were self-developed on their balance sheet. The company is exploring capital-efficient options, including land banking and development services, to optimize their lot pipeline. Jessica Hansen adds that they use land bankers when they have an excess supply of finished lots.

The paragraph discusses the company's focus on risk transfer in their contract structures and touches upon inventory levels, noting that affordable housing supply is generally limited. Michael Rehaut from JPMorgan inquires about regional differences in inventory levels, to which Paul Romanowski responds that there has been some buildup in Florida and Texas markets. However, overall, inventory is well-balanced as builders, including the company, are responsibly managing it based on market conditions. Rehaut also questions the company's option lot percentage and strategy regarding owned supply, to which Romanowski mentions a focus on improving inventory turns and build cycle times.

In the paragraph, Bill Wheat discusses the focus on improving capital efficiency through better management of land options and partnerships with third-party developers, as well as the strategic use of Forestar to enhance operations. The company is weighing the costs of such partnerships against the benefits of risk transfer and capital efficiency. Matthew Bouley then shifts the conversation by asking about the company's confidence in achieving a significant increase in home closings in the second half of the year, which is attributed to better cycle times and operational efficiencies. Paul Romanowski expresses confidence in their current efficiency levels.

The paragraph involves a discussion about housing inventory and gross margins during a financial call. The speaker expresses confidence in their housing and lot inventory and their ability to meet their target of delivering 90,000 to 92,000 homes for the year, contingent on the favorable outcome of the spring selling season. When asked about gross margins, Michael Murray explains that margins were lower in December due to changes in the mortgage rate environment, which moved from 6% to 7%. This is influencing their outlook for the second quarter, where margins might be lower than in December, despite the traditionally stronger spring selling season. Sam Reid from Wells Fargo asks for more specifics on the gross margin expected in the second quarter backlog.

The paragraph discusses the company's financial and operational outlook. Bill Wheat mentions that the margin in the backlog is stable and aligned with the expectations for Q2. The prevailing market interest rates range from 4.99% to 5.99%, with no significant change from the previous quarter. Sam Reid questions the impact of potential inflation in labor and material costs, possibly due to political and environmental factors. Paul Romanowski responds by reassuring that they have sufficient labor and materials, maintaining stable pricing and improving cycle times.

The paragraph is part of a conversation addressing potential impacts on the market and strategies related to affordability in housing. The speaker mentions they are well-positioned in terms of market share and do not expect significant inflation in labor or parts over the next year. When asked about addressing affordability and potential steps to reduce average selling prices (ASP), the speaker explains that making substantial changes in the short term is challenging due to pre-approved product parameters and guidelines. However, they are continuously exploring long-term efficiencies in land use and construction costs to deliver cost-effective housing solutions.

The paragraph discusses the trends in the real estate market concerning home closures, average square footage, and types of homes sold. Jessica Hansen mentions that the average square footage of closed homes decreased by 1% compared to the previous year and remained relatively flat sequentially, with an increase in attached homes (townhomes/duplexes) making up 17% of business, a rise from 15%. Eric Bosshard questions how rising interest rates (now back at 7%) are affecting consumer behavior, especially in a "higher for longer" rate environment. Paul Romanowski explains that maintaining favorable interest rates is a successful incentive for consumers, helping achieve quarterly goals with 53% home closings. Sales pace is satisfactory at the start of the current quarter, though they will monitor the spring selling season. Anthony Pettinari from Citi then asks about consumer debt levels and qualification abilities.

The paragraph discusses the state of the housing market, focusing on first-time buyers versus move-up buyers. Paul Romanowski notes that move-up buyers are finding it somewhat easier to proceed with purchases and have shown stronger activity in the last quarter. About 59% of buyers using their mortgage company are first-time homebuyers, and they work on improving buyers' credit challenges to facilitate home buying. Michael Murray mentions that the gross margin for smaller-format homes, like townhomes or duplexes, is similar to traditional homes, if the product is well-positioned. Following this, Mike Dahl from RBC Capital Markets inquires about pretax margin guidance.

The paragraph discusses the company's financial performance, noting a decrease in both pretax and gross margins year-on-year. Bill Wheat explains that lower rental margins, due to capital market uncertainties and higher interest rates affecting rental property buyers, are a significant factor in this decline. He anticipates that current supply challenges will alleviate by 2025-2026. Mike Dahl acknowledges this and shifts the focus to the company's strategy, questioning whether there is a shift towards prioritizing price and margin over volume in the near term. Michael Murray responds that the company continues to evaluate its business strategies at the community level.

The paragraph discusses a company's strategy for maximizing returns by allowing local operators to make decisions based on lot supply and market demand, focusing on community-specific needs rather than imposing uniform corporate directives. The approach is described as more of an art than a science, balancing sales pace and margins to optimize returns. Ken Zener from Seaport Research Partners then asks for insights into margin differences between backlog closings and speculative closings, as well as between the company's presence in 126 markets compared to other builders in 50 markets. Bill Wheat and Michael Murray respond by indicating they do not have specific margin breakdowns, but note that sales in a lower interest rate environment tend to have higher margins.

The paragraph features a discussion between financial analysts and company executives regarding regional margins, market performance, and land inflation. Ken Zener questions the consistency of regional margins around 16% despite differences in markets like Florida, Texas, and the West. Michael Murray and Bill Wheat explain that their market aggregation approach balances margin, pace, and inventory turns to optimize returns community by community, which smooths out regional margin differences. Rafe Jadrosich from Bank of America then asks about land inflation, noting a 3% quarter-over-quarter increase, and inquires about the implications for the year-over-year trend and future relief in contracting costs.

The paragraph discusses the financial performance and share repurchase strategy of a company. Jessica Hansen notes a year-over-year revenue increase of 10%, with expectations of moderating growth in the future. They anticipate land and development costs to remain stable, influencing their growth predictions. Rafe Jadrosich inquires about the increased share repurchase pace, questioning whether it is due to stock price or a change in strategy. Bill Wheat responds that their repurchase strategy remains unchanged, focusing on liquidity and balance sheet targets. However, they have accelerated repurchases due to stock price pressure and plan to remain active with a projected buyback of $2.6 billion to $2.8 billion.

The paragraph is a discussion during a Q&A session, focusing first on stock valuation strategies and the impact of inventory buildup on sales in specific regions, particularly Florida and Texas. Matthew Bouley notes that while there have been some moderations in sales due to previous valuation run-ups, early spring sales are promising. Trevor Allinson then inquires about potential impacts of changes in immigration policies and tariffs under a new administration. Michael Murray responds, indicating it is difficult to predict the impacts without knowing the specifics of the potential changes.

The paragraph discusses efforts to maintain housing affordability and the potential challenges posed by cost increases, which could hinder this goal. It touches on past experiences with immigration changes and tariffs, suggesting these impacts are generally regional. Inquiries from single-family rental investors for unsold inventory are addressed, indicating the company prefers to maintain a "merchant build" approach, offering opportunities for individual buyers and avoiding bulk sales. The company is comfortable with its inventory as it approaches the spring selling season.

The paragraph is part of a conversation in which Susan Maklari from Goldman Sachs asks about the impact of potential Federal Reserve rate cuts and their influence on consumer confidence in the housing market. Jessica Hansen responds that stability in interest rates, even without cuts, would be beneficial as it allows for better business management and affordability. Stable rates could encourage consumers to proceed with home purchases by adjusting their expectations. Additionally, Susan inquires about improving rental margins, querying the balance between internal operational efficiencies and broader market shifts.

In the paragraph, Michael Murray discusses the strategy of selling projects before they reach stabilization to improve capital efficiency, focusing on controlling costs and increasing operational efficiency across both the homebuilding and rental platforms. He mentions working with buyers of build-to-rent communities to sell earlier in the process. Susan Maklari acknowledges the plan, and the conversation then shifts to Alex Barron, who asks about the company's approach compared to competitors who focus on selling homes quickly, even at low interest rates. Paul Romanowski responds, emphasizing that decisions are made on a community-by-community basis, allowing local operators to balance competitiveness and maintain consistent pace and margin in their markets.

In the discussion, the company acknowledges offering competitive rates and incentives to achieve necessary absorption rates in the market, which can ultimately drive higher margins and returns. Alex Barron inquires about Forestar's lot sales, which appeared lower than expected due to timing issues, with expectations for increased deliveries throughout the year. The pricing environment is also addressed, noting slight declines in net average selling prices due to incentives, like rate buydowns, amidst higher mortgage rates. As a result, further downward movement in net average selling prices is anticipated in the near term.

During the conference call, Alex Barron asked about the expected average selling price (ASP), suggesting a figure around $370,000. Bill Wheat responded that while they are not specifically guiding to that number, a modest 1% to 2% sequential change is anticipated. With no further questions, the operator handed the call back to Paul Romanowski, who thanked the participants and acknowledged the solid first-quarter performance by D.R. Horton. He expressed appreciation for the team's efforts and looked forward to discussing second-quarter results in April. The call was then concluded.

This summary was generated with AI and may contain some inaccuracies.