D.R. Horton, Inc. (NYSE:DHI), Fort Worth, on Tuesday reported net income for its fiscal fourth fiscal quarter of $283.6 million, or $0.75 per diluted share, up 19% from $238.9 million, or $0.64 per diluted share, in the same quarter of fiscal 2015. Analysts were expecting a gain of $0.78. Results included $15.4 million of pre-tax inventory and land option charges to cost of sales and a pre-tax goodwill impairment charge of $7.2 million.

A Horton home in Skye Estates in Highland, Utah.
A Horton home in Skye Estates in Highland, Utah.

Horton's net income for the fiscal year ended September 30, 2016 increased 18% to $886.3 million, or $2.36 per diluted share, compared to $750.7 million, or $2.03 per diluted share, in fiscal 2015, including $31.4 million of pre- tax inventory and land option charges to cost of sales and a pre-tax goodwill impairment charge of $7.2 million.

Homes closed increased 16% from the prior-year quarter to 12,247 homes and 19% in value to $3.6 billion and net sales orders increased 3% to 8,744 homes and 7% in value to $2.6 billion.

Home-building revenue for the quarter increased 18% to $3.7 billion from $3.1 billion in the same quarter of 2015. Home-building revenue for the fiscal year ended September 30, 2016 increased 12% to $11.9 billion from $10.6 billion in fiscal 2015. Homes closed in fiscal 2016 increased 10% to 40,309 homes, compared to 36,648 homes in fiscal 2015.

Pre-tax profit margin for the quarter improved 90 basis points to 11.6% from 10.7% in the same quarter of fiscal 2015. The improvement in pre-tax profit margin for the quarter was driven primarily by a 60 basis point increase in the company's home sales gross margin. Pre-tax profit margin for fiscal 2016 improved 70 basis points to 11.1% from 10.4% in fiscal 2015. The improvement in pre-tax profit margin for the year was driven primarily by a 40 basis point increase in the company's home sales gross margin and a 20 basis point decline in home-building SG&A expense as a percentage of home-building revenues.

Home sales gross margin in the fourth quarter of fiscal 2016 was 20.5%, compared to 19.9% in the same quarter of fiscal 2015 and 20.3% in the third quarter of fiscal 2016. The improvement in gross margin was primarily due to the company controlling cost increases while also reducing incentives or raising prices when possible.

Horton said it expects home sales gross margin to be around 20%, with quarterly fluctuations that may range from 19% to 21% In the current housing market. Home-building SG&A expense as a percentage of home-building revenues in the fourth quarter of fiscal 2016 was 8.8%, flat with the same quarter of fiscal 2015. Home-building SG&A expense for the quarter included $15.5 million to write off a trade name asset the company is no longer using and to increase legal reserves for a court decision subsequent to fiscal year end.

The cancellation rate for the fourth quarter of fiscal 2016 was 28%. Net sales orders for the fiscal year ended September 30, 2016 increased 9% to 40,814 homes from 37,380 homes in fiscal 2015, and the value of net sales orders increased 12% to $12.0 billion from $10.7 billion. The cancellation rate for fiscal 2016 was 23%.

Sales order backlog of homes under contract at September 30, 2016 increased 8% to 11,475 homes from 10,662 homes at September 30, 2015. The value of the backlog increased 9% to $3.4 billion at September 30, 2016 from $3.1 billion a year ago.

Net cash provided by operations for fiscal 2016 was $618.0 million. Horton ended the year with $1.3 billion of home-building unrestricted cash and home-building debt to total capital of 29.2%.

During the fourth quarter of fiscal 2016, Horton acquired the home-building operations of Wilson Parker Homes (Wilson Parker) for approximately $91.9 million in cash, inclusive of a hold-back payment and an estimated post-closing adjustment. Wilson Parker operates in Atlanta and Augusta, Georgia; Raleigh, North Carolina; Columbia, South Carolina and Phoenix, Arizona. The assets acquired included approximately 380 homes in inventory, 490 lots and control of an additional 1,850 lots through option contracts. The Company also acquired a sales order backlog of 308 homes valued at $74.1 million. Subsequent to the acquisition date in September, the Company's fourth quarter results include 66 net sales orders and 81 homes closed from the Wilson Parker operations.

The Company has declared a quarterly cash dividend of $0.10 per common share, an increase of 25% compared to its most recent dividend paid. The dividend is payable on December 12, 2016 to stockholders of record on November 28, 2016.

Donald R. Horton, Chairman of the Board, said, “With 40,309 homes closed in fiscal 2016, D.R. Horton completed its 15th year in a row as the largest builder in the United States. ... "These results reflect the strength of our experienced operational teams, industry-leading market share, broad geographic footprint and diverse product offerings across our D.R. Horton, Emerald Homes and Express Homes brands. During the fourth quarter, we expanded our product lineup by introducing a new brand, Freedom Homes, focused on offering affordable homes for the active adult buyer seeking a low- maintenance lifestyle. With a sales backlog of 11,475 homes, a robust supply of lots and homes and positive sales trends in October, we are excited and ready to capitalize on market opportunities to deliver another strong performance in fiscal 2017.”

Horton's guidance for 2017:

  • Consolidated pre-tax profit margin of 11.2% to 11.5%
  • Consolidated revenues of $13.4 billion to $13.8 billion
  • Homes closed between 43,500 homes and 45,500 homes
  • Home sales gross margin around 20%, with potential quarterly fluctuations that may range from 19% to 21%
  • Home-building SG&A expense as a percentage of home-building revenues of approximately 9.0%