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D.R. Horton (DHI) Q4 Earnings In Line, Ups 2018 Guidance

D.R. Horton, Inc. DHI came up with yet another stellar performance in the final quarter of fiscal 2017. Although earnings came in line with the Zacks Consensus Estimate, revenues surpassed courtesy of a solid housing market scenario. The homebuilder’s order trends remained strong.

Despite some apprehensions arising out of the recent tropical storms, the Texas-based homebuilder’s sales marked the fifth straight surprise. To top it all, management announced a dividend hike, reflecting commitment toward its shareholders, and boosted it fiscal 2018 revenue and cash flow expectations on solid demand.

Earnings & Revenue Discussion

The company reported earnings of 82 cents per share, in line with the Zacks Consensus Estimate. Earnings also increased 9.3% year over year driven by higher home sales.

Total revenues (homebuilding and financial services) of $4.16 billion beat the Zacks Consensus Estimate of $4.04 billion and increased 11.2% year over year.

Home Closings and Orders

Homebuilding revenues of $4.07 billion increased 11.4% year over year. Home sales increased 10.9% year over year to $4.04 billion, aided by higher home deliveries. Land/lot sales and other revenues were $31.4 million, up from $13.5 million a year ago.

Home closings increased 7% to 13,165 homes, while in value it increased 11%. The company registered growth across all regions (baring South Central) comprising East, Midwest, Southeast, Southwest and West.

Net sales orders rose 18% to 10,333 homes on continued improvement. Orders increased across all operating regions except Midwest. The value of net orders grew 19% to $3.1 billion. The cancellation rate was 25%.

The quarter-end sales order backlog (under contract) rose 7% to 12,329 homes. Backlog value increased 8% to $3.7 billion.

Revenues at the financial services segment increased 2.5% to $92.6 million.

Margins

Gross profit on home sales came in at $821.1 million, increasing 10% year over year. However, gross margin on home sales contracted 10 basis points (bps) year over year to 20.3%.

Homebuilding selling, general and administrative expenses (SG&A) were $348 million, reflecting an increase of 8.1% from the prior-year quarter. SG&A expenses, as a percentage of homebuilding revenues, were 8.6%, down 20 bps year over year.

Homebuilding pre-tax income rose 13% year over year to $457.8 million.

Consolidated pre-tax income was $485.5 million in the quarter, increasing 12.1% year over year. Pre-tax profit margin expanded 10 bps year over year to 11.7%.

Hikes Dividend by 25%

The company has declared a quarterly cash dividend of 12.5 cents per share, an increase of 25% compared to its most recent dividend paid. The dividend is payable on Dec 15, 2017 to stockholders of record on Dec 1, 2017.

Balance Sheet

D.R. Horton’s homebuilding cash, cash equivalents and restricted cash totaled $982.3 million as of Sep 30, 2017, compared with $1,281.3 million as of Sep 30, 2016.

Fiscal 2017 Highlights

Total revenues (homebuilding and financial services) of $14.09 billion increased from the year-ago level of $12.16 billion.

Earnings came in at $2.74 per share, up from $2.36 in fiscal 2016.

Fiscal 2018 Guidance

The company expects consolidated revenues to grow 10-16%, implying $15.5 billion to $16.3 billion.

Consolidated pre-tax profit margin is now expected to be approximately 11.5% to 11.7% (against 11.5% expected earlier).

Cash flow from operations is expected to be at least $500 million (versus previous expectation of $300 million to $500 million).

D.R. Horton expects income tax rate of approximately 35.2%, diluted share count increase of less than 1%, homebuilding SG&A expense as a percentage of homebuilding revenues of around 8.7%, and home sales gross margin of around 20%.

The above preliminary guidance for fiscal 2018 does not include any impact from Forestar.

Zacks Rank

D.R. Horton carries a Zacks Rank #3 (Hold).

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

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

 

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

Peer Releases

PulteGroup’s PHM third-quarter 2017 adjusted earnings of 60 cents per share beat the Zacks Consensus Estimate of 59 cents by 1.7%. Also, quarterly earnings reflected a solid 40% jump from the year-ago quarter’s adjusted figure of 43 cents.

Louisiana-Pacific Corp. LPX reported adjusted earnings per share of 70 cents in the third quarter of 2017, missing the Zacks Consensus Estimate of 75 cents by 6.7%. Earnings improved considerably from the year-ago quarter’s 32 cents.

NVR, Inc. NVR reported third-quarter 2017 earnings of $38.02 per share, surpassing the Zacks Consensus Estimate of $36.11 by 5.3%. The reported figure also rose 34% from the year-ago $28.46.

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