With a wide breadth of products, from entry level up through luxury, and a geographic reach that stretches across the country, DR Horton’s quarterly reports can provide a good gauge of how the new home sales market is faring. And for the three-month period ending June, which is the company’s third quarter, things continue to improve after a strong second quarter.
Among the highlight from the company’s earnings release:
- Net sales orders increased 25% in value to $3.0 billion and 22% in homes to 10,398
- Homes closed increased 37% in value to $2.9 billion and 28% in homes to 9,856
- Sales order backlog increased 15% in value to $3.7 billion and 12% in homes to 12,761
- Pre-tax income increased 94% to $333.8 million
- Pre-tax profit margin improved 330 basis points to 11.3%
- Net income increased 96% to $221.4 million, or $0.60 per diluted share
- Cash flow from operations for the nine months ended June 30, 2015 improved $762.3 million to $188.6 million
In the release, Donald R. Horton, Chairman of the Board, credited the company’s diversity of product offering with its strong sales growth.
“Solid performance in our three core brands is enabling us to capitalize on market opportunities and continue to expand our industry-leading market share,” he said. “We are well-positioned to finish our fiscal year strong and have an even stronger fiscal 2016 with 12,761 homes in backlog, a robust community count, finished lot supply and inventory of homes available for sale and our diversified D.R. Horton, Emerald Homes and Express Homes product offerings. We remain intently focused on growing our revenues and profits at a double-digit pace, while generating improved returns and continued positive cash flows.”
Orders in the Southwest, Southeast, East, South Central, West and Midwest rose 44%, 35%, 19%, 16%, 11% and 5%, respectively, according to Rehaut.
“Notably, the company reported 11.9% year-over-year order growth in order ASPs in its South Central region (which includes Texas), indicating that the demand in the Lone Star State remains resilient despite concerns surrounding the energy industry,” wrote Raymond James’ Buck Horne.
The emergence of the Express line of entry-level homes didn’t seem to affects Toll’s pricing. “Despite its increased focus on the entry level through its Express brand, ASP +6% YOY reflecting the strong pricing trends across its business,” wrote UBS’ Susan Maklari.
Reaction to Horton’s performance was mixed. Horne called the performance “strong” and Maklari said the company had another impressive quarter, while J.P. Morgan’s Michael Rehaut said orders were actually below expectation.
“While EPS was solidly above the street and our estimate, we expect only a modestly positive reaction by the stock today, as we believe orders were slightly below investor expectations as well as our estimate, while gross margins [at 19.9%] were in-line with our estimate and company guidance,” Rehaut wrote.
Still analysts remain sold on Horton's size and strategy going forward. “Management continues to expect demand will improve, consistent with our view that the recovery remains on track and is gradually transitioning to the next stage of improvement,” Maklari wrote.
Rehaut likes the company’s Express strategy. “We maintain our Neutral rating on DHI, as we believe DHI’s valuation is reasonable relative to our outlook for above-average order growth and solid execution with regards to its growth strategy of more aggressively addressing the first-time buyer across its broad geographic footprint,” he wrote.