D.R. Horton, Inc. (NYSE:DHI) on Tuesday reported net income of $482.7 million, or $1.30 per share, for its second fiscal quarter ended March 31, up 37% and 40%, from the prior-year quarter. Wall Street was expecting a gain of $1.12 per share. Shares of DHI were up more than 7% in early trading on Tuesday.

Home building revenue for the second quarter of fiscal 2020 increased 10% to $4.4 billion from $4.0 billion in the same quarter of fiscal 2019. Homes closed in the quarter increased 8% to 14,539 homes compared to 13,480 homes closed in the same quarter of fiscal 2019.

A D.R. Horton paired villa in Florida.
A D.R. Horton paired villa in Florida.

As previously announced, net sales orders for the second quarter ended March 31, 2020 increased 20% to 20,087 homes and 22% in value to $6.0 billion compared to 16,805 homes and $4.9 billion in the same quarter of the prior year. The company’s cancellation rate (cancelled sales orders divided by gross sales orders) for the second quarter of fiscal 2020 was 19% which was unchanged from the prior year quarter.

The company's sales order backlog of homes under contract at March 31, 2020 increased 14% to 19,328 homes and 18% in value to $5.9 billion compared to 16,890 homes and $5.0 billion at March 31, 2019.

At March 31, 2020, the company had 33,400 homes in inventory, of which 16,700 were unsold. 4,700 of the company’s unsold homes at March 31, 2020 were completed. The company’s home building land and lot portfolio totaled 329,300 lots at the end of the quarter, of which 36% were owned and 64% were controlled through land purchase contracts.

The company's return on equity (ROE) was 19.1% for the trailing twelve months ended March 31, 2020, and home building return on inventory (ROI) was 20.2% for the same period.

The company ended the second quarter with $1.0 billion of unrestricted home building cash and $1.0 billion of available capacity on its $1.6 billion revolving credit facility for total home building liquidity of $2.0 billion. Home building debt at March 31, 2020 totaled $2.5 billion, with $400 million of senior note maturities in the next twelve months. The company’s home building debt to total capital ratio at March 31, 2020 was 19.2%.

Donald R. Horton, chairman of the board, said, “The D.R. Horton team delivered strong results in the second fiscal quarter of 2020 during an unprecedented time for our country, and we appreciate the efforts of our dedicated operational teams who continue to provide new homes to families across the United States. Since the beginning of the COVID-19 pandemic, our priority has been the health and safety of our employees, customers, trade partners and the communities we serve. We remain committed to all of the company’s stakeholders as we continue to safely operate our business.

“We began to see the impact of the pandemic on our operations and housing demand in late March and April and our experienced operators across the country have and continue to quickly adjust to changing market conditions. We are well-positioned to successfully operate in this uncertain environment with our experienced team, industry-leading market share, broad geographic footprint and diverse product offerings. We expect to maintain our flexible operational and financial position by generating strong cash flows from our home building operations, limiting land acquisition and land development spending and adjusting our product offerings, incentives, home pricing, sales pace and inventory levels to optimize the return on our inventory investments in each of our communities based on local housing market conditions."

Regarding current market conditions, the company "has experienced increases in sales cancellations and decreases in sales orders in late March and to date in April as compared to the same period in the prior year. Month-to-date in April 2020, the company’s net sales orders are approximately 11% lower than the same period a year ago. This month-to-date net sales trend may not be indicative of the net sales results that may be expected for the full month of April 2020, because a significant number of sales contract cancellations typically occur in the final days of each month, which can significantly affect net sales orders for the full month. As of the date of this report, the company’s weekly net sales order volumes in the most recent two weeks have increased as compared to the preceding four weeks.

"In almost all of the municipalities across the U.S. where the company operates, residential construction and financial services have been designated as essential businesses as part of critical infrastructure. The health and safety of D.R. Horton’s employees, customers and trade partners is the company’s first priority as operations continue. The company has safely continued its home building and financial services operations in those markets where allowed and has implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

"The company’s mortgage subsidiary, DHI Mortgage, has experienced lower pricing and gains on the sales of its mortgage loans and servicing rights in late March and April, due to disruption in the secondary mortgage markets. Many purchasers and servicers of mortgages have limited their purchases and tightened their credit standards due to liquidity and operational challenges caused by COVID-19 and the uncertainty of the impact of the borrower forbearance provisions of the federal Coronavirus Aid, Relief, and Economic Security Act enacted in late March 2020.

"There is significant uncertainty regarding the extent to which and how long COVID-19 and related government directives, actions and economic relief efforts will disrupt the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for the Company’s homes and availability of mortgage loans to homebuyers. The extent to which this impacts the Company’s operational and financial performance will depend on future developments, including the duration and spread of COVID-19 and the impact on D.R. Horton’s customers, trade partners and employees, all of which are highly uncertain and cannot be predicted."

During the quarter, Forestar Group Inc. (NYSE:FOR), the majority-owned subsidiary of D.R. Horton, sold 1,951 lots and generated $159.1 million of revenue compared to 548 lots and $65.4 million of revenue in the prior year quarter. Forestar ended the second quarter with $438.2 million of unrestricted cash and $349.0 million of available borrowing capacity on its senior unsecured revolving credit facility for total liquidity of $787.2 million. During the quarter, Forestar issued $300 million principal amount of 5.0% senior notes due 2028 and repaid $118.9 million of 3.75% convertible senior notes in cash at maturity. Forestar’s debt at March 31, 2020 totaled $640.1 million, with no senior note maturities until fiscal 2024.

DHI Communities, a wholly-owned D.R. Horton subsidiary and multi-family rental company that has three projects under active construction and one project that was substantially complete at March 31, 2020, sold its fourth multi-family rental project for $67.0 million and recorded a gain on the sale of $28.2 million, which is included in the consolidated statements of operations for the three and six months ended March 31, 2020. At March 31, 2020 and September 30, 2019, the consolidated balance sheets included $202.8 million and $204.0 million, respectively, of assets owned by DHI Communities.