Home builder D. R. Horton is bullish on the strength of the housing market, writes Tyler Crowe for the Motley Fool. Despite some indicators that the market may be losing steam--like a decrease in selling prices, increased inventory, and labor concerns--the company's management team is confident the market will remain strong through 2020.
The company's recent earnings report reflects the sentiment. Crowe writes:
The string of earnings results D.R. Horton has put together recently is truly impressive. Revenue was up 16.8% year over year as home closings increased 12% and the average selling price per home ticked up slightly. Even though average selling prices were up only modestly, management was able to keep costs in control such that its pre-tax margin ticked up 210 basis points to 13.9% and ended up beating Wall Street expectations for the quarter. It also thinks that many of the cost savings are sustainable and therefore increased its pre-tax margin guidance for the year to 12.7%-12.9%.
The only noticeable sign of a slowdown was that net new orders only outpaced homes closed by 3.7%. This is similar to the book-to-bill ratio for industrial companies. This number says that the business is expanding but at a rather modest pace. In the past few years, some homebuilders' net new orders were outpacing homes closed by double-digit rates.Read More