Pulte sharpens its segmentation focus in a push to resecure margins
Emerging from the last quarter of 2025 unscathed was no small task, PulteGroup’s Q4 2025 earnings call revealed, even as one of America’s most margin-resilient and disciplined builders staged a strong defensive stand against weakened demand.
Price pressures, regional slumps and an incentive-heavy environment painted a complicated picture for the nation’s third-largest builder in Q4. Still, Pulte executives expressed a note of optimism that last quarter will be the floor.
To position itself for more consistency in the year ahead, Pulte plans to lean into a stronger customer profile, focus its energy solely on its core homebuilding business, and move more of its completed spec inventory as the Spring selling season approaches.
Pulte, its executives conveyed to Wall Street analysts last week, is resetting its machine from a pandemic-era, spec-heavy momentum strategy to a higher-return, build-to-order model — while acknowledging that 2026 will still require elevated incentives and margin defense because lot costs are rising and demand remains lumpy and spotty, market by market.
The builder’s earnings reveal a mixed picture. New orders were up 4% year-over-year, and average community count rose 6%. However, its absorption pace fell slightly last year, its cancellation rate inched up by 200 basis points, closings slipped by 3% and revenues declined 5% year-over-year.
Margin squeeze continues
Pulte’s gross profit margin in Q4 was 24.7%, compared to 27.5%. James Ossowski, Executive VP & CFO at PulteGroup, laid much of the blame on a high incentive rate of 9.9%, up from 8.9% in Q3 and from 7.2% a year ago. He forecasts that margins will stay relatively flat for 2026.
“Higher incentives for the quarter were primarily the result of our effort to sell finished spec inventory as we closed out 2025. We currently expect to realise gross margins of 24.5% to 25.0% for both the first quarter and for the full year of 2026, but recognise that the spring selling season will be a key driver of our year,” he said.
Impairments, which totalled $35 million, were also a financial performance blemish, as they impacted last quarter’s margins by 80 basis points.
“Of the 1,000 communities that we operate in, we had eight of them that we took a land impairment charge on, which was really just…we had to get a little bit more aggressive on pricing,” Ossowski explained.
Pivot to a higher-margin product mix
Pulte executives view the firm’s Del Webb active adult communities as one of its core strengths, as they have margins 400 basis points higher than the company’s entry-level homes and 200 basis points higher than move-up products. Competitively, Pulte executives’ message is that its Del Webb product-market fit is better in a rate-choppy world because demand in that segment is more needs-based, equity-driven, and discretionary. That’s why executives plan to increase Del Webb community volume to 25% of total units, up from 20% just over a year ago.
The company is on track to achieve that goal in 2026, as 24% of closings in Q4 came from the active-adult segment, as well as 37% from the first-time segment and 38% from move-up buyers.
As with many of its homebuilding peers, Pulte is working to reduce its spec count to about 40%, down from roughly 60%. Built-to-order homes have margins hundreds of basis points higher than spec properties.
“As we go into the spring selling season, our goal is going to be to sell dirt in a higher percentage than spec, while still having some spec available, especially in the entry-level price points,” said President and CEO Ryan Marshall.
The first-time segment continues to be a sore spot, as prices for those homes fell 6% year-over-year. However, executives made no indication that entry-level homes will make up a smaller percentage of units going forward.
“Overall, it was a solid quarter amidst a challenging environment,” wrote Stephen Kim, Senior Managing Director at Evercore ISI. Kim pointed out that order growth and average sales price both beat expectations.
Geographic strengths and weaknesses
Marshall tied the enterprise’s diversified portfolio across multiple regions and cities as a hallmark of PulteGroup’s resiliency in 2025, noting that some markets will always underperform. The builder now operates in 47 markets, having expanded into Cincinnati in November.
According to Marshall, demand has held up pretty well in the Midwest, Northeast, and Florida, which has helped offset pressure from softer markets in the West and in Texas. He specifically pointed to Boston, the D.C. area, Chicago, Indianapolis, Louisville, and the Carolinas.
Many builders noted Florida as a challenging state last year, but Pulte had strong success in the Sunshine State in 2025, with orders increasing 13% year-over-year in the fourth quarter. M/I Homes similarly noted positive results from Florida last year as well.
The West was a weak spot for Pulte, particularly the more expensive coastal markets and in Colorado, another expensive state. Marshall additionally pointed to a challenging tech employment market as an additional layer of challenge in California and the Northwest. However, Las Vegas and Arizona performed better.
“The fact that we have such a diversified geographic platform, even with some of the challenges in the West, we’ve been able to perform incredibly well because of what our Florida, Southeast, Midwest and Northeast businesses have done,” Marshall said.
Shifting focus back to core homebuilding competencies
During the call, Marshall announced plans to sell Innovative Construction Group (ICG), Pulte’s off-site manufacturing operations. Pulte acquired ICG, which specialises in off-site framing solutions and on-site installation for single-family and multifamily properties, in 2020.
After buying ICG, post-COVID supply chain issues slowed down Pulte’s initial gains. Since then, larger off-site manufacturers invested heavily and now operate at a far greater scale, influencing Pulte’s decision to sell.
“We are huge proponents of the innovation possibility and the ability to incorporate it into the homebuilding machine. We’ve learned a lot over the last 6 years, gotten a ton of benefits in kind of what the overall housing operation has derived from the innovation that’s happened there. We’ve just come to the conclusion that we think we’re better off focusing on the core competency, buying land, entitling, developing, building homes,” Marshall said.
The upcoming sale of ICG indicates a strategic shift back to Pulte’s core homebuilding competencies. In a cutthroat homebuilding environment, more builders realise that they can’t do everything all at once.
Toll Brothers, for example, announced plans last year to exit the multifamily business with a sale to Kennedy Wilson. Lennar also recently sold a majority stake in Quarterra, its multifamily vertical.
Both of those deals, in addition to Pulte’s latest announcement, represent a recalibration. As homebuilders face a narrowing path to profitability, they are increasingly honing their focus on their core homebuilding business — and divesting from other verticals.
For Pulte, an impending ICG deal will also unlock capital the company can invest in homebuilding. It’s unclear what Pulte can expect in return for ICG, but the 2020 deal reportedly totalled $104 million.
Outlook: from defense to offense
According to Marshall, the first few weeks of January started well with an expected seasonal increase in demand. However, high incentives and price reductions are still an issue.
“At this time, I would tell you that improvements in the pace of sales are likely the result of pricing actions as we work hard to find a clearing price and turn assets. This is particularly true with regard to finished spec inventory that we needed to clear,” Marshall said.
Marshall is optimistic that the Spring selling season will perform well, with lower mortgage rates than last year and positive wage growth. However, average sales prices and gross margins are expected to stay relatively flat over the next year, and sales incentives will likely stay elevated.