D.R. Horton, PulteGroup Stocks Jump After Surprise Earnings Beat

Wall Street expects the housing industry doldrums to continue. (David Paul Morris/Bloomberg)

Home builders D.R. Horton and PulteGroup stocks rose after they both reported quarterly earnings on Tuesday that were way ahead of expectations.

Earnings for D.R. Horton’s fiscal third quarter came in at $3.36 a share on revenue of $9.2 billion. Analysts polled by FactSet had expected earnings of $2.89 a share on revenue of $8.8 billion.

PulteGroup reported earnings of $3.03 a share on revenue of $4.4 billion, in the second quarter. It had been expected to report earnings of $2.95 a share on revenue of $4.4 billion, according to FactSet.

D.R. Horton stock surged 12.6% to $147.84 Tuesday morning, while shares of PulteGroup climbed 8.2% to $117.51 The S&P 500 index was down 0.2%.

Both companies cited affordability constraints, high interest rates and cautious consumer sentiment as current market concerns. D.R. Horton management said they expect sales incentives to increase further in the fourth quarter, but the extent will remain dependent on home buyer demand, changing mortgage rates and “other market conditions.”

PulteGroup, however, said they are optimistic about the “positive consumer response” following interest rate pullbacks in late June.

At PulteGroup, fewer home purchases led to a 6% year over year decrease in closings this quarter. D.R. Horton closings also decreased 4% over the same period.

Despite higher sales incentives, margins for both home builders bounced also surpassed expectations.

PulteGroup’s gross margin on homes sales was 27%, while D.R. Horton’s totaled to 21.8%. Wall Street analysts expected margins for PulteGroup and D.R. Horton to equal 26.6% and 21.2%, respectively.

New home orders for the home builders were mixed. PulteGroup reported 7,083 new home orders, which was down slightly from Wall Street’s estimate of 7,221. D.R. Horton, however, reported 23,071 new home orders, surpassing consensus calls for 22,114 orders.

While the numbers beat Wall Street’s estimates, the national housing market looks crummy for sellers of all kinds. Zillow on Monday said that 26.6% listings saw a price cut in June, the largest share for that month since at least 2018. The highest share of home builders since at least 2022—38%—cut prices in July, according to the National Association of Home Builders.

“Builders often, as the last resort, cut prices,” says Robert Dietz, the chief economist of the home builders association. “The fact that that [statistic] is near 40%, when a year ago, it was near 25%, is a signal that the housing market is softening.”

Investors should continue to look for how these companies will continue to handle the slow pace of home sales. Builders serving first-time buyers might have to keep using their margins to complete those deals, analysts wrote recently.

The share of these buyers purchasing from builders has increased over the past several years, Evercore analyst Stephen Kim wrote in a note earlier this month. In 2024, first-timers represented 40% of builder sales, down from the year prior but well above the 32% share before the pandemic, according to the National Association of Home Builders.

“This isn’t good news,” Kim said. In a resale market with a dearth of available entry-level homes, “builders have no choice but to meet this demand by bringing down their [average selling prices] and margins,” he writes.

Even if margins show signs of bottoming out, a builder turnaround is likely still far in the future. “We expect the challenging environment for home builders to persist into 2H25,” BofA analyst Rafe Jadrosich wrote in a report earlier this month, noting that incentives and price reductions, two tools builders use to stimulate demand, will continue.

That could be particularly true if first-time buyers continue to turn to prefer the new-home market over their odds in the resale market. “We […] expect an aggressive promotional environment, especially at the low end, to clear inventory ahead of spring 2026 could be another gross margin headwind,” Wedbush analyst Jay McCanless wrote in a recent report.

Meanwhile, investors should keep their eyes on signs of the resale market loosening up. The National Association of Realtors will release its June existing-home sales data on Wednesday.

“Someday, the low end of the existing home market will finally “unlock,” and when it does, the builders will see a richer mix of move-up buyers once again,” Evercore’s Kim wrote. “Until that happens, though, they’ll have to just keep on grinding.”

Write to Shaina Mishkin at shaina.mishkin@dowjones.com and Elsa Ohlen at elsa.ohlen@barrons.com