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Disappointing earnings results from the homebuilding industry is continuing after D.R. Horton (DHI) missed 2Q25 EPS and revenue expectations, cut its FY25 outlook, and issued downside 3Q25 revenue guidance of $8.40-$8.90 bln. Similar to KB Home (KBH) and Lennar (LEN), each of which reported Q1 earnings last month, DHI faced a slower-than-typical spring selling season as affordability constraints and waning consumer confidence kept potential homebuyers at bay. 

While the main narrative for DHI and its competitors remains unchanged from recent quarters -- namely, high mortgage rates and inflation are exacerbating affordability issues -- the intensity of these headwinds has strengthened.

• Following a 1% decrease last quarter, net sales orders sank by 15% in Q2 to 22,437 homes. In the past, DHI's focus on entry-level affordable homes has worked in its favor, supporting strong order volume. Looking back just two quarters ago, net sales orders grew by 10% to approximately 24,000 homes. Now, however, with affordability pressures increasing, DHI's entry-level customer base, with little or no existing home equity available to use as a down payment, is more detrimental.
• As these headwinds escalate, homebuilders have responded by ramping up incentives to drive traffic and sales. Last quarter, DHI warned that incentive costs were likely to increase further over the next few months, and the company echoed that message during this morning's earnings call. As such, DHI's margins continue to spiral lower with it forecasting Q3 home sales gross margin of 21.0-21.5% compared to 21.8% in Q2, 23.6% in Q1, 24.0% in 4Q24, and 24.6% in 3Q24. This is resulting in lower profitability as Q2 EPS decreased by 27% yr/yr to $2.58.
• Due to the soft results in 1H25 and the unfavorable market conditions, DHI cut its FY25 revenue guidance to $33.3-$34.8 bln from its prior outlook of $36.0-$37.5 bln, and its home closings forecast to 85,000-87,000 homes from 90,000-92,000 homes. Unless interest rates begin sliding lower, demand is unlikely to improve in the back half of DHI's FY25.
• There is a silver lining, though. As DHI's stock has slumped, the company has stepped up its share buyback activity. In 2Q25 alone, DHI repurchased 9.7 mln shares for $1.3 bln, reducing the outstanding share count by 7% compared to a year ago. DHI also announced a new, larger share repurchase program of up to $5.0 bln, stating that it expects to repurchase approximately $4.0 bln of common stock this fiscal year compared to its prior guidance of $2.6-$2.8 bln.

Driven by a slower-than-expected spring selling season amid ongoing affordability constraints that are weighing on consumer confidence, DHI posted downside Q2 results and lowered its outlook for FY25. Helping to offset the soft results and outlook, DHI is significantly bolstering its capital return efforts by expanding and accelerating its share repurchases, supporting EPS during this downturn.