D.R. Horton Profit, Revenue Surge On Strong Orders
D.R. Horton calmed fears Monday about shrinking homebuilder profit margins by maintaining its outlook for this year — less than two weeks after two other top builders set off panic by warning theirs will continue to narrow.
The Fort Worth, Texas-based company said it continues to see its average home sales gross margin at around 20% for this year, though its fiscal Q1 margin fell to 19.8% from 22.3% a year earlier.
It follows Lennar's (LEN) outlook for gross margins to dip to 24% this year from 25.4% in 2014 amid rising costs and bigger promotions.
KB Home (KBH) said the margin drop it saw last quarter is the start of a longer-term trend.
But D.R. Horton (DHI) CFO Bill Wheat said on a conference call that the company is looking at ways to cut costs, and noted the drop in oil prices will ease prices for shingles and other petroleum-based inputs.
"There are always things that we can do with our scale, market by market and globally," he said. "There are national arrangements and we can assure you that that's something that we are very focused on throughout our organization as to even out that relationship (with suppliers) and stabilize that going forward, so we can improve our margins.
Shares jumped 5.5%. Lennar gained 2.7%, and KB Home went up 1.8%. PulteGroup (PHM), MDC Holdings (MDC), Ryland (RYL) and Beazer (BZH), which all report later this week, also rose.
D.R. Horton's Q1 earnings per share rose 8.3% to 39 cents, topping by 5 cents a share. Homebuilding revenue jumped nearly 38% to $2.24 billion, beating estimates for $2.08 billion and marking the third straight quarter of accelerating growth.
Total home sales closed in the quarter rose 30% to 7,973.
Net orders shot up 40% in value to $2.1 billion and 35% in volume to 7,370 homes.
While Lennar's incentives rose to $23,100 per home, or 6.6% of home sales revenue, from $20,600, or 6.3%, D.R. Horton's have been unchanged since last spring. Texas home sales remain solid, with no impact from plunging oil prices, the company added.
Morningstar analyst James Krapfel doesn't think lower margins will be a key factor this year.
"They will have lower gross margins but higher returns," he told IBD. "And they'll get more growth in terms of revenue.
Sterne Agee analyst Jay McCanless raised his fiscal 2015 EPS forecast to $1.96 from $1.83 and his 2016 view to $2.22 from $2.12, citing better-than-expected average closing prices, backlog prices and demand.
Meanwhile, smaller builder NVR (NVR) reported weaker-than-expected Q4 earnings and revenue. Shares fell 2.7%.
