D.R. Horton's Revenue Surprise Boosts Stock Price

D.R. Horton reported net profit and revenue that beat expectations, sending the shares higher early Tuesday.

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The home builder reported a net profit of $2.76 per diluted share on revenue of $7.3 billion. This is higher than the earnings of $2.25 per share that analysts had expected, and revenue was also higher than the expected amount of $6.4 billion.

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Stock prices were up 2.4% in premarket trading. D.R. Horton is set to release its earnings report soon, and the below is a preview of what to expect. Stay tuned for more updates as this story develops. D.R. Horton is expected to report lower earnings for its first quarter when it releases its financial results on Tuesday. This would be a contrast to its earnings from last year.

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Analysts are expecting that the company will report earnings of $2.25 per share on revenue of around $6.4 billion for the quarter ended December 31. They are also expecting that the company will report 15,706 home deliveries and 14,567 new orders. Estimates for the fourth quarter of 2022 are lower than the same quarter last year, reflecting a cooling off period in the housing market. Mortgage rates rose as high as 7.08% in October and November of 2022 before retreating, according to Freddie Mac's weekly rates.

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D.R. Horton discussed higher rates during its conference call in November, which covered the three months ending Sept. 30.
"Looking ahead to the first quarter of fiscal 2023, we anticipate that challenging market conditions will continue, with ongoing uncertainty around mortgage rates, the capital markets and general economic conditions potentially having a significant impact on our business,” said Jessica Hansen, vice president of investor relations. She added that the company is reducing home prices “where necessary” and using more incentives, which could impact the company’s first-quarter gross margins.

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D.R. Horton, based in Arlington, Texas, operates in more than 30 states and is known for building relatively affordable homes, with 67% of its closed homes in its fiscal 2022 selling below $400,000, according to a presentation included with its fourth quarter earnings. In a note initiating coverage of D.R. Horton, Oppenheimer analysts Tyler Batory and Jonathan Jenkins wrote that the home builder has a strong balance sheet, an attractive land book, and a strong management team.

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The analysts at Perform have initiated coverage of D.R. Horton's shares, noting that the company's focus on entry-level buyers may result in slower margins and possible price reductions.

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D.R. Horton is not the only builder seeing macroeconomic headwinds weigh on its earnings. Lennar, the nation's second-largest public builder, said in December that new orders had fallen 15% year-over-year in the quarter ended Nov. 30, while its gross margin on home sales had narrowed to 24.8% from 28% one year prior.
The home builder is forecasting a new home order range of 12,000 to 13,500 for its 2023 fiscal first quarter.

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Stuart Miller, Lennar's executive chairman, said in a statement accompanying the company's earnings release that interest rates have been fluctuating and are likely to continue to do so. He added that the housing market will continue to rebalance pricing and interest rates. KB Home, a smaller builder of customizable homes based in California, saw orders drop by roughly 80% year-over-year. The company's housing gross profit margin was 22.4%, about flat with the 22.3% margin KB Home reported one year prior.

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Since the middle of last year, high mortgage rates, persistent inflation, and an uncertain economy have made home buyers more cautious. As a result, in the fourth quarter, KB Home CEO Jeffrey Mezger said that the company prioritized delivering its large backlog and protecting its high margins over taking steps to stimulate additional sales.

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For investors watching D.R. Horton’s earnings, a winter slowdown is, by now, expected. However, signs of housing demand and builder confidence are ticking up, offering hope for a stronger spring market. Those watching the housing market and builder stocks are likely more interested in any future guidance offering a clarified view of the spring housing market and future earnings.

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In 2022, 5.03 million existing homes were sold, a 17.8% drop from 2021. This is the lowest annual figure since 2014.
Mortgage rates have fallen significantly from their peak in 2022, making now a great time to buy a home. Lower rates are boosting housing demand, so now is the time to take advantage of this opportunity.

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On its conference call in November, D.R. Horton's Hansen said the company's visibility into 2023 was limited due to macroeconomic uncertainty. "We will reassess each quarter and give more color on our expectations as we can," Hansen said.

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Analysts currently expect earnings per share of $9.55 in fiscal 2023, on revenue of around $27.5 billion. This would be a decrease from fiscal 2022 earnings, but still higher than the company's earnings before the pandemic.