D.R. Horton, Inc. (DHI - Free Report) exhibited a mixed performance in the fourth quarter of fiscal 2016 with earnings missing the Zacks Consensus Estimate and sales surpassing the same. Shares declined 5.52% in pre-market trading following the release.
However, the TX-based homebuilder’s order trends remained strong in the quarter.
The company reported adjusted earnings of 75 cents per share which missed the Zacks Consensus Estimate of 77 cents by 2.6%. However, earnings increased 17.2% year over year driven by higher margins.
Fiscal 2016 earnings came in at $2.36 per share, up from $2.03 a year ago.
Total revenue (homebuilding and financial services) of $3.74 billion beat the Zacks Consensus Estimate of $3.67 billion by 0.5%. Total revenue also rose 18.1% year over year.
Fiscal 2016 total revenue was $12.16 billion, up from $10.82 billion in fiscal 2015.
Home Closings and Orders
Homebuilding revenues of $3.65 billion rose 18.1% year over year as the core brands – D.R. Horton, Emerald Homes and Express Homes – performed reasonably well in the quarter.
Home sales increased 19.2% year over year to $3.64 billion aided by higher home deliveries.
Home closings increased 16% to 12,247 homes. The company also registered growth in the East, Midwest, Southeast and South Central, Southwest and West regions.
Net sales orders rose 3% to 8,744 homes on continued improvement in sales. Orders increased across all the operating regions, barring South Central. The value of net orders grew 7% to $2.6 billion. Cancellation rate of 28% was higher than 27% in the last-year quarter.
The quarter-end sales order backlog (under contract) rose 8% to 11,475 homes. Backlog value grew 9% to $3.4 billion.
Land sales contributed $13.5 million to revenues, lower than $39 million a year ago.
Revenues from the financial services segment increased 10.9% to $90.3 million.
Gross profit on home sales was $746.6 million, up 22.9% year over year. Gross margin on home sales expanded 60 basis points (bps) year over year to 20.5%.
Cost control, lower incentives and higher prices offset higher costs, resulting in gross margin growth.
Homebuilding selling, general and administrative expenses (SG&A) were $321.9 million, up 18% from the prior-year quarter.
SG&A expenses, as a percentage of homebuilding revenues, remained flat year over year at 8.8%.
Homebuilding pre-tax income rose 34.1% year over year to $405 million. Higher homebuilding revenues drove the upside. Pre-tax income from financial services came in at $28 million, down 23.9% year over year.
Consolidated pre-tax income was $433 million in the quarter, up 27.8% year over year. Pre-tax profit margin improved 90 bps to 11.6%.
D.R. Horton’s homebuilding cash, cash equivalents and marketable securities totaled $1,271.8 million as of Sep 30, 2016, compared with $1,354.8 million as of Sep 30, 2015.
In fiscal 2016, D.R. Horton generated $618 million of operating cash compared with $700.4 million in the prior fiscal.
Fiscal 2017 Outlook
D.R. Horton continues to maintain a positive outlook with revenues and profits expected to increase in double digits, annually.
Total revenue is projected in the range of $13.4 billion to $13.8 billion. Consolidated pre-tax margin guidance is estimated in the band of 11.2% to 11.5%. Homebuilding SG&A expenses, as a percentage of homebuilding revenues, will likely be approximately 9.0%.
Home closing is likely to be between 43,500 homes and 45,500 homes.
Tax rate is likely to be at around 35%. Cash flow from operations is expected between $300 million and $500 million.
D.R. Horton carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
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