D.R. Horton's (DHI) Q1 Earnings Lag Estimates, Revenues Beat

D.R. Horton, Inc. (NYSE:DHI) kicked off fiscal 2019 on an unimpressive note and delivered a negative earnings surprise of 2.6% in first-quarter fiscal 2019. This leading homebuilder’s earnings also declined on year-over-year basis. Moreover, shares of the homebuilder declined 1.7% in the pre-market trading session following the earnings release.

The company’s earnings came in at 76 cents per share in the quarter, missing the Zacks Consensus Estimate by 2 cents. The reported figure also decreased 1.3% from the year-ago adjusted profit level of 77 cents.

Revenue Discussion

Total revenues (Homebuilding, Forestar and Financial Services) came in at $3.52 billion, up 5.6% year over year. The reported figure also topped the consensus mark of $3.47 billion. Indeed, higher prices of both new and existing homes across most of the markets served by the company, coupled with rising interest rates impacted affordability and resulted in some moderation in the demand for homes. Then again, the company has been experiencing steady demand and a limited supply of homes at affordable prices across its markets, given solid economic fundamentals and financing availability.

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

Home Closings and Orders

Homebuilding revenues of $3.42 billion increased 6.1% from the prior-year quarter. Home sales also increased 7.1% year over year to $3.41 billion, aided by higher home deliveries. Land/lot sales and other revenues were $6.7 million, down from $36.4 million a year ago.

Home closings increased 7% to 11,500 homes and 7.1% to $3.41 billion in value. It recorded growth across all regions (barring Southwest) comprising East, Midwest, Southeast and South Central.

Net sales orders increased 3% to 11,042 homes, with improvement in all operating regions, except Southeast, Southwest and West. Value of net orders remained unchanged year over year at $3.23 billion. The cancellation rate was 24%, up from 22% in the prior-year quarter.

Quarter-end sales order backlog (under contract) increased 10.3% from the prior-year quarter to 13,565 homes. Backlog value increased 7.2% from the year-ago quarter to $4.04 billion.

Revenues at the Financial Services segment increased 5.3% from the year-ago level to $85.3 million. Forestar contributed $38.5 million to its quarterly revenues, reflecting an improvement of 25% year over year.

Margins

The company’s consolidated pre-tax margin contracted 100 basis points to 10.7% in the quarter.

Meanwhile, the company acquired the homebuilding operations of Westport Homes, Classic Builders and Terramor Homes during the fiscal first quarter for $320.7 million. Through these additions, D.R. Horton took over approximately 700 homes in inventory, 4,500 lots and 4,300 additional lots via option contracts. It also acquired a sales order backlog of approximately 700 homes.

Balance Sheet

D.R. Horton’s cash, cash equivalents and restricted cash totaled $768.3 million as of Dec 31, 2018 compared with $1,506 million on Sep 30, 2018.

Zacks Rank

Currently, 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.

Some better-ranked stocks in the Zacks Construction sector are Gibraltar Industries, Inc. (NASDAQ:ROCK) , Gates Industrial Corporation PLC (NYSE:GTES) and Taylor Morrison Home Corporation (NYSE:TMHC) . While Gibraltar and Gates Industrial sport a Zacks Rank #1 (Strong Buy), Taylor Morrison carries a Zacks Rank #2 (Buy).

Gibraltar, Gates Industrial and Taylor Morrison’s earnings for 2019 are expected to increase 17.2%, 9.7% and 18.5%, respectively.

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