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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 2019 results on Nov 12, before the opening bell.

In the last reported quarter, the company’s earnings and revenues beat the Zacks Consensus Estimate by 18.9% and 8.2%, respectively. Earnings and revenues of this homebuilding company grew 7% and 10.6%, respectively, from the year-ago reported figures, courtesy of the key spring selling season, its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands.

Markedly, D.R. Horton reported better-than-expected earnings in two of the last four quarters, with the average positive surprise being 5.91%.

Trend in Estimate Revision

The Zacks Consensus Estimate for earnings for the to-be-reported quarter is currently pegged at $1.25, remaining unchanged over the past 30 days. This indicates an increase of 2.5% from the year-ago earnings of $1.22 per share. The consensus mark for revenues is $4.84 billion, suggesting a 7.8% year-over-year improvement.

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

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

D.R. Horton, Inc. price-eps-surprise | D.R. Horton, Inc. Quote

Factors to Consider

Factors like favorable mortgage rates, moderate home prices, industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands are expected to have helped D.R. Horton to generate higher revenues in the fourth quarter of fiscal 2019.

For the fiscal fourth quarter, the company expects consolidated revenues in the range of $4.75-$4.9 billion, indicating an increase from $4.495 billion recorded a year ago, and homes closed within 15,700-16,000, suggesting growth from 14,674 units closed in the year-ago period. The Zacks Consensus Estimate for homes closed is pegged at 15,849 units, implying an improvement of 8% from 14,674 units reported in the year-ago period but a 0.8% decline from 15,971 units in the fiscal third quarter.

Overall, the consensus estimate for Homebuilding revenues (accounting for more than 97% of revenues) of $4.73 billion suggests a 7.7% increase from $4.39 billion recorded a year ago but 0.7% decrease from $4.76 billion in the fiscal third quarter.

Despite higher revenue expectation, D.R. Horton’s earnings are expected to have been affected by gross margin woes. Increased costs, reduced pricing power, higher incentives on sales activity and the impact of purchase accounting might have had a negative impact on fiscal fourth-quarter gross margins. Again, rising land/labor and material costs, as well as competitive pricing pressure — which have been causes of concern for homebuilders over the last few quarters — will likely reflect on the company’s gross margin.

For the fiscal fourth quarter, it expects gross margin in the range of 20.4-20.7%, implying a contraction from 21.6% in the year-ago period due to the above-mentioned headwinds. That said, the company expects lower lumber costs to lead to a sequential improvement of 10-40 basis points in gross margin in the quarter.

The company expects homebuilding SG&A expenses to be 8.1-8.3% of revenues, pointing to a decrease from 8.4% a year ago.

Meanwhile, it expects Financial Services pre-tax margin within 31-34% for the quarter. The consensus estimate for Financial Services revenues is pegged at $112 million, indicating 9.8% growth from $102 million in the year-ago period but a 6.7% decline from $120 million reported in the fiscal third quarter.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for D.R. Horton, which shares space with Lennar Corp. (LEN - Free Report) in the Zacks Building Products - Home Builders industry, this time around. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive surprise. This is not the case here, as you will see below.

Earnings ESP: D.R. Horton has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Jacobs Engineering Group Inc. has an Earnings ESP of +0.97% and holds a Zacks Rank #2.

Continental Building Products, Inc. has an Earnings ESP of +3.95% and carries a Zacks Rank #3.

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