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D.R. Horton (DHI) to Post Q4 Earnings: What's in the Cards?

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D.R. Horton Inc. (DHI - Free Report) is scheduled to report fourth-quarter fiscal 2018 results on Nov 8, before the opening bell. In the last reported quarter, earnings of the company, which shares space with Lennar (LEN - Free Report) , KB Home (KBH - Free Report) and PulteGroup, Inc. (PHM - Free Report) in the Zacks Homebuilding industry, came in at $1.18 per share, beating the Zacks Consensus Estimate of $1.08 by 9.3%.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. For the quarter to be reported, the Zacks Consensus Estimate is currently pegged at $1.23, trending downward over the past 30 days. Nevertheless, this reflects an increase of 50% from the year-ago earnings of 82 cents per share. Revenues are expected to be $4.59 million, up 10.5% year over year.

D.R. Horton, Inc. Price and EPS Surprise

D.R. Horton, Inc. Price and EPS Surprise | D.R. Horton, Inc. Quote

Factors at Play

Higher Demand to Boost Top Line: Earlier in October, the company released preliminary fourth-quarter fiscal 2018 results, wherein the company’s deliveries lagged analysts’ expectation. Nonetheless, it pointed out that sales absorption increased across all its brands and geographic regions through September from a year ago, signaling continued strong demand for product offerings. This positive commentary surrounding absorption should provide some relief to investors regarding possible demand softness that is prevailing in the industry in the recent times and D.R. Horton’s ability to maintain its double-digit revenue and earnings growth targets for fiscal 2019.

The company stated that homes closed in the quarter increased 11% to 14,674. For the full year, homes closed increased 13% to 51,857 and 14% in value to $15.5 billion. Overall, revenues from home sales in fiscal 2018 grew 14% to $15.5 billion.

Additionally, D.R. Horton reported that net sales order, a key indicator of future revenues for homebuilders, increased 11% to 11,509 homes and 10% in value to $3.4 billion in the fiscal fourth quarter. For the full year, net sales orders advanced 13% to 52,740 homes and 13% to $15.8 billion in value.

D.R. Horton’s well-stocked supply of land, plots and homes lends it a strong competitive position to meet the growing demand in the upcoming quarters, thereby driving sales and home closings. This helped the company achieve double-digit annual growth in both revenues and pre-tax profits, while generating annual positive operating cash flow along with increasing returns.

For the to-be-reported quarter, the Zacks Consensus Estimate for Homebuilding revenues (comprising about 97.5% of the total revenues) of $4,437 million indicates an increase from $4,266 million in the last reported quarter and $4,067 million in the year-ago period.

Cost Reduction to Improve Margins: Management has been consistently making efforts to reduce both construction, and selling, general and administrative (SG&A) expenses. It keeps construction costs under check by designing homes efficiently, and also via obtaining construction materials and labor at competitive prices, thereby helping it to boost the bottom line.

Home sales gross margin improved 210 basis points (bps) year over year and 110 bps sequentially to 21.9% in the fiscal third quarter, due to higher sales, as well as reduction of litigation and warranty costs. SG&A expenses improved 50 bps from the prior-year quarter to 8.8%, as a percentage of homebuilding revenues. The trend is expected to have continued in the to be reported quarter as well.

What the Zacks Model Says

Our proven model does not show that D.R. Horton is likely to beat estimates in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: D.R. Horton has an Earnings ESP of -1.51%.

Zacks Rank: D.R. Horton currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

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