Quarterly Earnings Exceed Expectations
D.R. Horton, the leading residential home builder in the U.S., announced impressive earnings for its fourth fiscal quarter, ending in September. The company reported earnings of $4.45 per share on revenue of $10.5 billion, surpassing analysts’ expectations. FactSet analysts had projected earnings of $3.94 per share on revenue of $10 billion.
Positive Stock Movement
Investors showed their enthusiasm for the company’s performance, as D.R. Horton’s stock rose by 1.7% in premarket trading. In addition to the good news regarding earnings, shareholders also received another reason to celebrate: the company increased its quarterly dividend to 30 cents per share, a 20% bump from the previous distribution.
Insights into the Housing Market
As the largest publicly traded home builder in the U.S., D.R. Horton’s earnings provide valuable insights into the state of the broader housing market. With operations spanning multiple markets and states, the company offers a comprehensive view of national trends.
Carl Reichardt, a BTIG analyst covering the builders, recognizes D.R. Horton’s significance in the industry. He explains, “They are in so many markets and states that you get a super comprehensive view of the national housing market.”
Expectations and Projections
D.R. Horton is set to release its fourth-quarter and full-year earnings report on Tuesday morning before trading commences. According to FactSet analysts, the projected earnings for the quarter stand at $3.94 per share, with revenue estimated at $10 billion. For the full fiscal year, analysts anticipate earnings of $13.33 per share on approximately $35 billion in revenue.
Although these estimates fall short of 2022’s earnings per share of $16.51, D.R. Horton’s sales are expected to surpass 2022’s revenue of $33.5 billion. However, the company’s home sales gross margin is projected to narrow, standing at 23.3% compared to last year’s nearly 29% margin.
A Challenging Environment for D.R. Horton
The current challenges faced by D.R. Horton, a leading homebuilding company, come as no surprise to investors. David Auld, the company’s former CEO and current vice chairman of the board, acknowledged these difficulties during the latest earnings call in July. He attributed the lower homebuilding operating margins to cost inflation, pricing adjustments, and incentives that were implemented to address affordability issues caused by higher mortgage rates.
The Impact on the Housing Market
The shortage of affordable homes is not unique to D.R. Horton. According to a survey conducted by the National Association of Home Builders, as mortgage rates increased towards a 23-year high in late 2022, 36% of builders resorted to offering incentives to boost sales or prevent cancellations. Although this percentage decreased when mortgage rates stabilized earlier this year, it has once again risen in recent months alongside the upward trend in mortgage rates.
Insights from D.R. Horton’s Earnings Call
Investors are eagerly awaiting D.R. Horton’s earnings call on Tuesday for more insights into the types of incentives offered by builders to stimulate inventory sales. This information will shed light on the company’s ability to navigate the challenging market conditions. Additionally, D.R. Horton being the first large public builder to report fourth-quarter and full-year earnings makes its outlook even more significant. Analysts anticipate that Horton will provide more detailed guidance for fiscal year 2024 during the call, compared to what other companies have disclosed in their recent earnings reports.
In conclusion, despite facing headwinds, D.R. Horton’s strategic approach to addressing affordability challenges and its overall outlook will be key areas of interest for investors in the coming year.