D.R. Horton Inc. 2026 Q4 Earnings Call

Thank you, and good morning. Welcome to our call to discuss our fourth quarter and fiscal 2026 financial results. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission.

This morning's earnings release and supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-K in about three weeks. Please note that we are now posting our supplementary data presentation at the time of our earnings release. After this call, we will also post our updated investor presentation for your reference. Now, I will turn the call over to Paul Romanowski, our President and CEO.

Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray, our Chief Operating Officer, and Bill Wheat, our Chief Financial Officer. This year, the D.R. Horton team completed our 25th consecutive year as America's largest builder by volume and had the privilege of providing homeownership to more than 84,000 individuals and families, including approximately 43,500 first-time homebuyers. In total, our home building and rental operations provided more than 89,000 families a place to call home during fiscal 2026. For the fourth quarter, our consolidated pre-tax income was $1 billion on revenues of $9.4 billion, with a pre-tax profit margin of 10.8%. For the year, our consolidated pre-tax income was $3.9 billion on revenues of $33 billion, with a pre-tax profit margin of 11.8%.

In fiscal 2026, we generated $3.5 billion of cash from operations and returned $4.1 billion to shareholders through repurchases and dividends. Over the past five years, we've generated $14 billion of operating cash flow and returned all of it to shareholders, reflecting consistent execution, operational efficiency, and disciplined, balanced capital allocation. We work every day to leverage our industry-leading platform, unmatched scale, efficient operations, and experienced teams to bring homeownership opportunities at affordable price points to more Americans. 63% of the D.R. Horton homes that our mortgage company financed this quarter were to first-time homebuyers. Our teams continued to manage each community based on local market conditions, adjusting pricing and incentives to meet demand and maximize returns. New home demand came under increased pressure in the fourth quarter as mortgage rates rose sharply, which further constrained affordability while consumer sentiment remained cautious.

Our net sales orders were 7% lower than the prior year quarter, and our home sales gross margin was below our expectations. In response to the more challenging market conditions, we reduced our starts from the June quarter to better align our inventory with demand. Our cycle times remain near historical lows, providing us with greater flexibility to respond to changes in demand while operating with fewer homes in inventory. We will continue to manage our inventory levels closely while maintaining enough homes available for sale to meet demand in each of our communities. We are well positioned to drive future growth and stronger returns when market conditions improve.

Mike? Net income for the quarter was $741.8 million, or $2.67 per diluted share on consolidated revenues of $9.4 billion.

For the year, net income was $2.9 billion, or $10.11 per diluted share on revenues of $33 billion. Home sales revenues in the fourth quarter totaled $8.4 billion on 22,915 homes closed. Our average closing price for the quarter was $365,600, up 1% sequentially and flat compared to the prior year. Our average closing price was approximately $135,000, or 27% below the average price of a new home in the U.S., reflecting our continued focus on affordability.

Bill? Net sales orders in the fourth quarter decreased 7% from the prior year quarter to 18,619 homes, and order value declined 9% to $6.6 billion.

The average price of net sales orders was $356,600, down 2% sequentially and year-over-year. Our cancellation rate for the quarter was 23%, compared to 20% sequentially and year-over-year. Our average number of active selling communities increased 2% sequentially and 10% year-over-year.

Jessica? Our gross profit margin on home sales revenues in the fourth quarter was 19.5%, down 120 basis points sequentially from the June quarter and below our expectations.

Market conditions became more challenging as the quarter progressed, which limited our ability to offset higher costs with pricing, resulting in 80 basis points of the decline. Above normal litigation costs accounted for the remainder of the decrease. On a per square foot basis, home sales revenues and stick and brick costs were each up 1% sequentially, while lot costs increased 4%. For the full fiscal year, home sales revenues declined 2%, stick and brick costs declined 4%, and lot costs increased 6%. We expect continued pressure on our home sales gross margin in the first quarter, reflecting a lower average sales price and higher incentive costs at current mortgage rates, and we expect our incentive levels to remain elevated in fiscal 2027.

Both incentive levels and our full-year home sales gross margin will depend on the strength of demand during the spring, changes in mortgage rates, and other market conditions.

Bill? Our fourth quarter home building SG&A expenses increased 7% compared to the prior year quarter, and SG&A expense as a percentage of revenues was 8.7%, up 80 basis points.