It has been a rough year for homebuilders. Will it improve?
Homebuilder stocks have been hit hard this year, due to a combination of factors, ranging from high interest rates to inflation to a sluggish economy. But are things starting to turn around?
On Tuesday, the leading homebuilder stocks were among the day’s top gainers. The catalyst was better-than-expected earnings reports from two leaders in the industry – D.R Horton (NYSE:DHI) and PulteGroup (NYSE:PHM). Both reported earnings Wednesday morning and both topped Wall Street estimates.
D.R Horton generated revenue of $9.2 billion in the quarter ended June 30, which was down 7% year-over-year. But that exceeded analysts’ estimates of $8.8 billion. Also, D.R. Horton made $1.0 billion in net income, or $3.46 per share, which was down 18% from the same quarter a year ago. This was well above estimates of $2.89 per share.
Net sales tick up from previous quarter
Net sales orders were flat year-over-year, but they were up 3% from the previous quarter. Further, the company closed on more homes than at the high end of its range, according to David Auld, executive chairman.
In addition, the company maintained its home sales gross margin of 21.8%.
“New home demand continues to be impacted by ongoing affordability constraints and cautious consumer sentiment,” Auld said. “We expect our sales incentives to remain elevated and increase further during the fourth quarter, the extent to which will depend on the strength of demand during the remainder of summer, changes in mortgage interest rates and other market conditions.”
Also, D.R. Horton raised its revenue guidance for fiscal 2025 at the low end to a range of $33.7 billion to $34.2 billion. Previously, the range was $33.3 billion to $34.8 billion.
It also lowered the high end of its homes closed by homebuilding operations with a range of 85,000 homes to 85,500 homes, down from 85,000 to 87,000. But it boosted its share repurchases to a range of $4.2 billion to $4.4 billion, up from $4 billion.
D.R. Horton stock jumped 14% on the earnings beat, rising to around $150 per share.
PulteGroup and D.R. Horton lift all builders
PulteGroup also posted an earnings surprise for the June quarter, its fiscal second quarter. It generated $4.4 billion in revenue, down 4% but in line with estimates. Net income was off about 25% from the same quarter a year ago to $608.5 million, or $3.03 per share, but that bested estimates of $2.95 per share.
Further, PulteGroup had a home sale gross margin of 27%, which was down from 29.9% last year, but was consistent with the guidance range
“Our operating and financial results allowed us to continue to return funds to shareholders, as we repurchased $300 million of stock in the second quarter, while generating a return on equity of 23%,” Ryan Marshall, president and CEO of PulteGroup, said. “Over the course of the 2025 spring selling season, we saw consumers dealing with a range of issues from high interest rates and challenged affordability to macro concerns about the strength of the economy. We are encouraged, however, by the positive consumer response we saw to the pullbacks in interest rates in late June and at times earlier in the year.”
PulteGroup stock rose about 8% on Tuesday, rising to around $117 per share.
The better-than-anticipated results for these two stocks lifted homebuilders throughout the industry. Foe example, Dream Finders Homes (NYSE:DFH) was up 8.6% Tuesday, while Lennar Corp (NYSE:LEN) and KB Homes (NYSE:KBH) were each up 8%.
Further, Meritage Homes (NYSE:MTH) and Toll Brothers (NYSE:TOL) were up 7% on the day.
These stocks are so cheap that the decent news led to a flurry of investor activity. But whether or not they really start to turn the corner will likely depend on what the Fed does next week with rates.
