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D.R. Horton (DHI) to Post Q1 Earnings: What's in the Offing?

Zacks Equity Research

D.R. Horton Inc. DHI is scheduled to report first-quarter fiscal 2019 results on Jan 25, before the opening bell. In the last reported quarter, earnings of the company came in at $1.22 per share, missing the Zacks Consensus Estimate of $1.23 by 0.8%. Nonetheless, D.R. Horton has a strong earnings surprise history. It surpassed earnings expectations in six of the past eight quarters. Moreover, the company beat the consensus mark for revenues in seven of the past eight quarters.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at 78 cents, remaining unchanged over the past 60 days. Nevertheless, this reflects an increase of 1.3% from the year-ago earnings of 77 cents per share. Revenues are expected to be $3.47 million, up 4.1% year over year.

Factors at Play

Concerns surrounding affordability and rising mortgage rates have been plaguing the U.S. housing industry of late. Higher prices of both new and existing homes across most of the markets served by the company, coupled with rising interest rates have impacted affordability and resulted in some moderation in the demand for homes in the last reported quarter. These ongoing market headwinds are expected to have impacted the fiscal first quarter as well.

That said, D.R. Horton, like other homebuilders, remains positive on ongoing traffic trends that indicate higher inclination of buyers. It continues to experience strong demand, courtesy of solid economic fundamentals and financing availability.

In the to-be-reported quarter, the company expects consolidated revenues of $3.3-$3.5 billion (compared with $3.33 billion recorded a year ago) and homes closed within 11,000-11,500 (versus 10,788 units closed in the year-ago period).

D.R. Horton stated that full-year fiscal 2019 results will be significantly impacted by the spring selling season. Due to the ongoing housing market uncertainties, the company even refrained from providing full-year guidance. Nevertheless, it believes that the company remains well positioned to deliver double-digit growth in fiscal 2019, subject to the strength of the spring selling season.

Meanwhile, rising land/labor and material costs, as well as competitive pricing pressure are major causes of concern. Management has been consistently making efforts to reduce both construction, and selling, general and administrative (SG&A) expenses. It keeps construction costs under check by designing homes efficiently, and also via obtaining construction materials and labor at competitive prices, thereby helping to boost the bottom line.

For the to-be-reported quarter, the company expects consolidated pre-tax margin in the range of 11.4-11.7% compared with 11.7% reported in the year-ago period.

What the Zacks Model Says

Our proven model does not show that D.R. Horton is likely to beat estimates in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: D.R. Horton has an Earnings ESP of -1.05%.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks Worth a Look

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Meritage Corporation MTH has an Earnings ESP of +1.08% and carries a Zacks Rank #3. The company is slated to report quarterly numbers on Jan 30.

Taylor Morrison Home Corporation TMHC has an Earnings ESP of +25.00% and a Zacks Rank #3. The company is expected to report quarterly numbers on Feb 6.

Owens Corning Inc OC has an Earnings ESP of +1.05% and holds a Zacks Rank #3. The company is expected to report quarterly results on Feb 20.

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