Back to top

Image: Bigstock

D.R. Horton's Q2 Sales Strong, March Cancellation Rate Rises

Read MoreHide Full Article

D.R. Horton, Inc. (DHI - Free Report) announced preliminary results for the second quarter of fiscal 2020 (ended Mar 31, 2020), wherein it reported solid sales, net orders and backlog numbers. Additionally, it reported select preliminary results for the month of March 2020 amid the coronavirus pandemic.

Fiscal Second-Quarter Snapshots

Housing market fundamentals mostly remained solid throughout second-quarter fiscal 2020, given low interest rates on mortgage loans and strong demand owing to limited supply of homes at affordable prices across most of the markets served by the company.

Home sales revenues in the fiscal second quarter increased 10% to $4.4 billion from $4 billion a year ago. Homes closed grew 8% to 14,539 homes and 10% in value to $4.4 billion in the quarter.

Net sales orders increased 20% to 20,087 homes and 22% in value to $6 billion. It registered double-digit percentage growth in each geographic region served except Southeast, which recorded 7% net sales order growth. Cancellations were 4,570 homes in the quarter compared with 3,896 homes a year ago, resulting in a cancellation rate of 19% in both the periods.

The company's sales order backlog of homes under contract, as of Mar 31, 2020, advanced 14% on a year-over-year basis to 19,328 homes and 18% in value to $5.9 billion.

It had $1 billion of unrestricted homebuilding cash and $1 billion of available capacity on the $1.6-billion revolving credit facility for total homebuilding liquidity of $2 billion at the end of fiscal second quarter. As of Mar 31, 2020, homebuilding debt totaled $2.5 billion, with $400 million of senior note maturities in the next 12 months.

March Highlights

Widespread slowdown in economic activity owing to the coronavirus outbreak began to adversely affect the company’s business operations and the demand for homes in the latter part of March, with continuation of the same in April. Cancellation rate in March was 24% compared with 18% a year ago.

Nonetheless, gross sales orders in the month grew 14% to 8,511 homes from 7,495 homes in March 2019. Net sales orders in the month increased 6% to 6,491 homes from 6,127 homes in March 2019 and the value of net sales orders increased 5% to $1.9 billion from $1.8 billion.

Recently, another homebuilding company, Meritage Homes Corporation (MTH - Free Report) revealed that the company started 2020 on a solid note. However, the company witnessed a sharp drop in home orders in March on a year-over-year basis, owing to spread of the COVID-19 pandemic (read more: Meritage Homes' Q1 Orders Strong, March Orders Decline).

Fiscal 2020 Guidance Withdrawn

Uncertainties in the U.S. economy and the company's business operations arising from COVID-19 have prompted D.R. Horton to withdraw its previously issued fiscal 2020 guidance.

However, post the cooling down of coronavirus concerns, we expect the housing trends to gradually regain momentum, given the low level of existing homes for sale and positive affordability trends.

D.R. Horton — which is slated to report fiscal second-quarter earnings on Apr 28 before the opening bell — paid cash dividends of $64.1 million in the quarter and repurchased 4 million shares of common stock for $197.3 million. As of Mar 31, 2020, this Zacks Rank #3 (Hold) company has $535.3 million remaining under the stock repurchase authorization. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of D.R. Horton have outperformed the industry in the past year. The uptick is expected to continue, courtesy of its impressive performance, industry-leading market share, solid acquisition strategy, well-stocked supply of land, lots and homes, along with affordable product offerings across multiple brands.

Discouragingly, coronavirus continues to rattle the stock market, wiping out considerable equity for households. Coronavirus woes, and imminent recession and layoffs resulting from the same are anticipated to dent the housing market — which includes notable names like Lennar (LEN - Free Report) , D.R. Horton and PulteGroup (PHM - Free Report) — in the near term.

Free: Zacks’ Single Best Stock Set to Double

Today you are invited to download our latest Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.

See 5 Stocks Set to Double>>

Published in