D.R. Horton Touts Faster Completions in Earnings Report

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Originally Published by: Builder Online — January 23, 2024
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D.R. Horton, the largest company on the BUILDER 100 list, says it will lean on lower prices and higher incentives to sell more homes in a challenging market.

“To adjust to changing market conditions in fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced prices and sizes of our home offerings where necessary to provide better affordability to home buyers,” Bill Wheat, chief financial officer, said during the home builder’s earnings call with investors.

“Based on current market conditions, mortgage rates, and continued affordability challenges, we expect our incentive levels to remain elevated in the near term.”

In its fiscal first quarter that ended Dec. 31, the home builder reported a profit of $947.4 million, or $2.82 per share, compared with profits of $958.7 million, or $2.76 per share, in the first quarter of 2023. While the profits per share figure represented an improvement on a year-over-year basis, the results missed Wall Street expectations of profits per share of $2.88.

“We are well positioned to meet changing market conditions with our affordable product offerings and flexible lot supply and are focused on turning our inventory to maximize returns and capital efficiency in each of our communities,” said chairman of the board Donald Horton.

D.R. Horton’s first quarter revenue of $7.73 billion represented a 6% year-over-year increase and outperformed analyst projections in the quarter.

Despite challenging market conditions in the fourth quarter, including elevated inflation and mortgage rates nearing 8%, D.R. Horton reported net sales orders increased 35% year over year in the first quarter to 18,069 homes.

The value of net sales orders increased 38% to $6.8 billion in the quarter compared with $4.9 billion in the same quarter of 2023. The average price of net sales orders in the first quarter for D.R. Horton was $375,800, down 2% sequentially but up 2% compared with the first quarter of 2023.

Homes closed in the first quarter increased 12% year over year to 19,340 homes, while the cancellation rate improved on both a sequential and year-over-year basis to 19%. The average closing price in the first quarter was $376,200, a decrease on both a sequential and year-over-year basis.

D.R. Horton’s sales order backlog of homes under contract at Dec. 31 decreased 11% year over year to 13,965 homes. At the end of the quarter, the home builder had 42,600 homes in inventory, of which 28,800 were unsold. Of the unsold inventory, 9,000 homes were completed.

“We started 19,900 homes in the December quarter and ended the quarter with 42,600 homes in inventory, down 1% from a year ago,” CEO Paul Romanowski said. “Our current number of homes in inventory puts us in a strong position for the spring selling season.”

He said the cycle times for homes closed in the fourth quarter continued to improve and D.R. Horton is “essentially back to our historical average of four months from start to [completion].”

The company expects to improve housing inventory turns in fiscal 2024, and D.R. Horton will adjust its starts pace to match market conditions, according to Romanowski.

The builder’s portfolio totaled 607,200 lots at the end of the first quarter, of which 24% were owned and 76% were controlled through land and lot purchase contracts.

Chief operating officer Mike Murray said the company allocated $2.4 billion in investment in land, lots, and development in the first quarter, including $740 million in land development.

Rental Operations and Forestar

D.R. Horton’s rental operations generated pre-tax income of $31.3 million on revenues of $195.3 million in the quarter compared with $110.3 million pre-tax income on revenues of $327.5 in the same quarter in fiscal 2023. The company sold 379 single-family rental homes and 300 multifamily rental units in the quarter compared with 694 single-family homes and 300 multifamily units in the prior-year period.

D.R. Horton's portfolio at the end of the fiscal first quarter was 5,280 single-family rental homes (including 4,920 completed homes), 2,980 lots (1,045 finished lots), and 10,200 multifamily units (of which, 8,070 units were under active construction).

Forestar, the residential lot development subsidiary of D.R. Horton, sold 3,150 lots and generated $305.9 million in the first quarter compared with 2,263 lots and $216.7 million of revenue in the prior year quarter.