Homebuilder (NYSE:DHI) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 15.1% year on year to $7.73 billion. The company’s full-year revenue guidance of $34.05 billion at the midpoint came in 5.8% below analysts’ estimates. Its GAAP profit of $2.58 per share was 2.5% below analysts’ consensus estimates.

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David Auld, Executive Chairman, said, “For the second fiscal quarter of 2025, the D.R. Horton team delivered solid results, highlighted by earnings per diluted share of $2.58. Consolidated pre-tax income for the quarter was $1.1 billion on revenues of $7.7 billion, with a pre-tax profit margin of 13.8%. We leveraged our operational results and strong balance sheet to return $1.4 billion to shareholders through share repurchases and dividends during the quarter, and we have reduced our outstanding share count by 7% from a year ago.

Company Overview

One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE:DHI) builds a variety of new construction homes across multiple markets.

Home Builders

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, D.R. Horton grew its sales at an exceptional 13.8% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. D.R. Horton’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.4% over the last two years was well below its five-year trend.

D.R. Horton also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. D.R. Horton’s backlog reached $5.5 billion in the latest quarter and averaged 19.4% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, D.R. Horton missed Wall Street’s estimates and reported a rather uninspiring 15.1% year-on-year revenue decline, generating $7.73 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, similar to its two-year rate. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

D.R. Horton has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.9%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, D.R. Horton’s operating margin decreased by 1.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, D.R. Horton generated an operating profit margin of 12.9%, down 3 percentage points year on year. Since D.R. Horton’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

D.R. Horton’s EPS grew at an astounding 21.1% compounded annual growth rate over the last five years, higher than its 13.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into D.R. Horton’s earnings quality to better understand the drivers of its performance. A five-year view shows that D.R. Horton has repurchased its stock, shrinking its share count by 15.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For D.R. Horton, its two-year annual EPS declines of 5.6% mark a reversal from its (seemingly) healthy five-year trend. We hope D.R. Horton can return to earnings growth in the future.

In Q1, D.R. Horton reported EPS at $2.58, down from $3.52 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects D.R. Horton’s full-year EPS of $13.22 to shrink by 1.9%.

Key Takeaways from D.R. Horton’s Q1 Results

We struggled to find many positives in these results. Its revenue and EPS both fell short of Wall Street’s estimates. Additionally, D.R. Horton lowered its full-year revenue guidance, missing Wall Street estimates significantly. Overall, this quarter could have been better. The stock traded down 3.1% to $114 immediately after reporting.

D.R. Horton’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.