By Shaina Mishkin

The nation's largest home builder is set to report earnings on Thursday before the market opens. Expect a fresh read on buyers' appetite -- and the incentives builders are offering to seal the deal in a weak housing market.

Analysts estimate that D.R. Horton earned $2.63 a share on about $8 billion in revenue in its second quarter ended March 31, according to FactSet. That would be in-line with its guidance calling for revenue between $7.7 billion and $8.2 billion, but down from earnings of $3.52 a diluted share on $9.1 billion in revenue in the same quarter one year ago.

Investors will likely keep a close eye on the Texas-based builder's margins. Analysts are looking for a 21.8% home sales gross margin, in-line with the builder's guidance calling for a margin in a range from 21.5% to 22%, but down from the 22.2% margin they expected in February, according to FactSet.

Builders' margins have narrowed as mortgage rates gained. The increase in costs over the past few years, spurred by quicker-than-normal home price gains during the pandemic, and a steep run-up in mortgage rates from historic lows, necessitates that builders offer incentives to keep sales volume up.

The company's outlook could matter more than the completed quarter -- particularly as other builders have issued weaker than expected guidance or reduced previous full-year expectations. "Future guidance and management commentary on navigating potential tariffs likely overshadow FY2Q results," Oppenheimer analyst Tyler Batory wrote in an April 8 note.

The already-difficult environment for building and selling homes could get tougher with tariffs -- a concern that has sent the industry's stocks lower. The iShares U.S. Home Construction exchange-traded fund is down 13.2% this year, a larger decline than the S&P 500's 7.9% drop. D.R. Horton's stock is down 15.3% so far this year.

Waning consumer sentiment and an air of economic uncertainty could add further pressure. Consumer sentiment toward the housing market dropped to its lowest level in over a year in March, according to the results of a survey published by Fannie Mae earlier this month. Nearly a third of respondents feared for their jobs -- the largest share on record in the survey, which dates to 2011.

That is a red flag for housing demand, says Joel Berner, a senior economist at Realtor.com. "People who are kind of antsy about losing their job are not going to want to put down hundreds of thousands of dollars on a new home," he says. "It's just something that really slows demand in a really direct way." ( News Corp, which owns Barron's, also owns Realtor.com operator Move.)

If demand remains sluggish, it could necessitate more deals for buyers. "The large number of completed homes combined with weaker than normal demand could result in discounts (and pressure [gross margin]), in our view," Oppenheimer's Batory wrote.

In April, 61% of builders offered sales incentives to buyers, according to a National Association of Home Builders report released Wednesday, while 29% cut prices. At the same time, a majority of respondents said prices for building materials had already risen "in response to announced, enacted, or expected tariffs," the trade group wrote.

"Builders have expressed growing uncertainty over market conditions as tariffs have increased price volatility for building materials at a time when the industry continues to grapple with labor shortages and a lack of buildable lots," Buddy Hughes, the association's chairman, said in a release.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 16, 2025 16:15 ET (20:15 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.