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Why Is D.R. Horton (DHI) Down 4.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for D.R. Horton (DHI - Free Report) . Shares have lost about 4.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is D.R. Horton due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
D.R. Horton, Inc. reported first-quarter fiscal 2023 (ended Dec 31, 2022) results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate.
Yet, on a year-over-year basis, the metrics declined due to prevailing softness in the market.
Pertaining to the result, Donald R. Horton, the chairman of the board, said, “Beginning in June 2022 and continuing through today, we have seen a moderation in housing demand caused by significant increases in mortgage interest rates and general economic uncertainty. While these pressures may persist for some time, the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable.”
Earnings, Revenue & Margin Discussion
DHI reported adjusted earnings of $2.76 per share for the fiscal first quarter, beating the Zacks Consensus Estimate of $2.27 by 21.6% but decreasing 13% from the year-ago figure of $3.17.
Total revenues (Homebuilding, Forestar, Rental and Financial Services) came in at $7.26 billion, up 2.9% year over year. The reported figure topped the consensus mark of $6.5 billion by 11.6%. Consolidated pre-tax margin contracted to 17.5% for the quarter from 21.4% a year ago.
Segment Details
Homebuilding revenues of $6.74 billion increased just 1% from the prior-year quarter. Home sales were $6.71 billion, slightly up from $6.66 billion reported a year ago. Home closings were down 6% from the prior-year quarter to 17,340 homes.
Net sales orders were down 38% year over year to 13,382 homes. The value of net orders also declined 40% year over year to $4.9 billion. The cancellation rate (on gross sales orders) was 27%, up from 15% a year ago.
Order backlog of homes at the end of the fiscal first quarter was 15,759 homes, down 46% year over year. Moreover, the value of the backlog was down 44% from the prior year to $6.2 billion.
Financial Services’ revenues decreased 25.7% from the year-ago level to $137 million.
Forestar contributed $216.7 million to total quarterly revenues with 2,263 lots sold, reflecting a decline from $407.6 million in revenues generated a year ago on 4,516 lots sold.
The Rental business generated revenues of $327.5 million for the quarter compared with $156.5 million a year ago.
Balance Sheet Details
D.R. Horton’s cash, cash equivalents and restricted cash totaled $2.61 billion as of Dec 31, 2022, compared with $2.57 billion at the end of fiscal 2022. It had $2 billion of available capacity on the revolving credit facility at the end of 2022. Total homebuilding liquidity was $4 billion.
At the end of December 2022, DHI had 43,200 homes in inventory, of which 27,800 were unsold. D.R. Horton’s homebuilding land and lot portfolio totaled 551,000 lots at 2022-end. Of these, 25% were owned and 75% were controlled through land and lot purchase contracts.
At the end of 2022, homebuilding debt totaled $3 billion, with a homebuilding debt to total capital of 12.8%. The homebuilding debt includes $700 million of senior notes, which will mature in fiscal 2023. The trailing 12-month return on equity was 31.5%.
D.R. Horton repurchased 1.4 million shares of common stock for $118.1 million during the fiscal first quarter. The company’s remaining stock repurchase authorization as of Dec 31, 2023, totaled $320.2 million.
The company paid dividends of $86.1 million during the quarter and announced a quarterly cash dividend of 25 cents per share, payable on Feb 14, 2023, to stockholders of record on Feb 7.
Fiscal Q2 2023 Guidance
Total revenues are now expected in the range of $6.3-$6.7 billion (compared with $8 billion a year ago). Homes closed are anticipated within 16,000-17,000 units. Home sales gross margin is expected within 20-21% compared with 28.9% a year ago. Homebuilding SG&A, as a percentage of revenues, is expected to be 8% to 8.3% (versus 6.8% reported a year ago). Financial services pretax profit margin will likely be around 20%, and the income tax rate to be approximately 23.5% to 24% in the quarter.
Fiscal 2023 Views
Given the uncertainty related to mortgage interest rates, the capital markets and general economic conditions, the company did not divulge much about the full-year guidance. The company expects consolidated revenues to be potentially down by a mid???teens percentage in fiscal 2023 compared with fiscal 2022.
The income tax rate is expected to be approximately 23.5% to 24%. Fiscal 2023 cash flow from homebuilding operations on a consolidated basis to be higher than fiscal 2022. Outstanding share count at the end of the fiscal year to be lower than fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -10.22% due to these changes.
VGM Scores
At this time, D.R. Horton has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, D.R. Horton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is D.R. Horton (DHI) Down 4.6% Since Last Earnings Report?
It has been about a month since the last earnings report for D.R. Horton (DHI - Free Report) . Shares have lost about 4.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is D.R. Horton due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
D.R. Horton's (DHI - Free Report) Q1 Earnings Top, Down Y/Y
D.R. Horton, Inc. reported first-quarter fiscal 2023 (ended Dec 31, 2022) results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate.
Yet, on a year-over-year basis, the metrics declined due to prevailing softness in the market.
Pertaining to the result, Donald R. Horton, the chairman of the board, said, “Beginning in June 2022 and continuing through today, we have seen a moderation in housing demand caused by significant increases in mortgage interest rates and general economic uncertainty. While these pressures may persist for some time, the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable.”
Earnings, Revenue & Margin Discussion
DHI reported adjusted earnings of $2.76 per share for the fiscal first quarter, beating the Zacks Consensus Estimate of $2.27 by 21.6% but decreasing 13% from the year-ago figure of $3.17.
Total revenues (Homebuilding, Forestar, Rental and Financial Services) came in at $7.26 billion, up 2.9% year over year. The reported figure topped the consensus mark of $6.5 billion by 11.6%.
Consolidated pre-tax margin contracted to 17.5% for the quarter from 21.4% a year ago.
Segment Details
Homebuilding revenues of $6.74 billion increased just 1% from the prior-year quarter. Home sales were $6.71 billion, slightly up from $6.66 billion reported a year ago. Home closings were down 6% from the prior-year quarter to 17,340 homes.
Net sales orders were down 38% year over year to 13,382 homes. The value of net orders also declined 40% year over year to $4.9 billion. The cancellation rate (on gross sales orders) was 27%, up from 15% a year ago.
Order backlog of homes at the end of the fiscal first quarter was 15,759 homes, down 46% year over year. Moreover, the value of the backlog was down 44% from the prior year to $6.2 billion.
Financial Services’ revenues decreased 25.7% from the year-ago level to $137 million.
Forestar contributed $216.7 million to total quarterly revenues with 2,263 lots sold, reflecting a decline from $407.6 million in revenues generated a year ago on 4,516 lots sold.
The Rental business generated revenues of $327.5 million for the quarter compared with $156.5 million a year ago.
Balance Sheet Details
D.R. Horton’s cash, cash equivalents and restricted cash totaled $2.61 billion as of Dec 31, 2022, compared with $2.57 billion at the end of fiscal 2022. It had $2 billion of available capacity on the revolving credit facility at the end of 2022. Total homebuilding liquidity was $4 billion.
At the end of December 2022, DHI had 43,200 homes in inventory, of which 27,800 were unsold. D.R. Horton’s homebuilding land and lot portfolio totaled 551,000 lots at 2022-end. Of these, 25% were owned and 75% were controlled through land and lot purchase contracts.
At the end of 2022, homebuilding debt totaled $3 billion, with a homebuilding debt to total capital of 12.8%. The homebuilding debt includes $700 million of senior notes, which will mature in fiscal 2023. The trailing 12-month return on equity was 31.5%.
D.R. Horton repurchased 1.4 million shares of common stock for $118.1 million during the fiscal first quarter. The company’s remaining stock repurchase authorization as of Dec 31, 2023, totaled $320.2 million.
The company paid dividends of $86.1 million during the quarter and announced a quarterly cash dividend of 25 cents per share, payable on Feb 14, 2023, to stockholders of record on Feb 7.
Fiscal Q2 2023 Guidance
Total revenues are now expected in the range of $6.3-$6.7 billion (compared with $8 billion a year ago). Homes closed are anticipated within 16,000-17,000 units. Home sales gross margin is expected within 20-21% compared with 28.9% a year ago. Homebuilding SG&A, as a percentage of revenues, is expected to be 8% to 8.3% (versus 6.8% reported a year ago). Financial services pretax profit margin will likely be around 20%, and the income tax rate to be approximately 23.5% to 24% in the quarter.
Fiscal 2023 Views
Given the uncertainty related to mortgage interest rates, the capital markets and general economic conditions, the company did not divulge much about the full-year guidance. The company expects consolidated revenues to be potentially down by a mid???teens percentage in fiscal 2023 compared with fiscal 2022.
The income tax rate is expected to be approximately 23.5% to 24%. Fiscal 2023 cash flow from homebuilding operations on a consolidated basis to be higher than fiscal 2022. Outstanding share count at the end of the fiscal year to be lower than fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -10.22% due to these changes.
VGM Scores
At this time, D.R. Horton has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, D.R. Horton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.