D.R. Horton, Inc. DHI came up with yet another stellar show in the second quarter of fiscal 2017, with both earnings and revenues beating the Zacks Consensus Estimate given solid housing market scenario. The Texas-based homebuilder’s order trends remained strong in the quarter. Shares of this homebuilder escalated 2.36% in the pre-market trading session post earnings release at the time of writing.
Earnings & Revenue Discussion
The company reported earnings of 60 cents per share, beating the Zacks Consensus Estimate of 59 cents by 1.7%. Earnings also increased 15.4% year over year driven by higher home sales.
Total revenue (homebuilding and financial services) of $3.25 billion beat the Zacks Consensus Estimate of $3.09 billion by 5.2%. Total revenue also rose 17.5% year over year.
Home Closings and Orders
Homebuilding revenues of $3.164 billion rose 17% year over year. Home sales increased 17.6% year over year to $3.158 billion aided by higher home deliveries. Land/lot sales and other revenues were $6.3 million, down from $15 million a year ago.
Home closings increased 15% to 10,685 homes. The company registered growth across all the regions comprising East, Midwest, Southeast, South Central, Southwest and West.
Net sales orders rose 14% to 13,991 homes on continued improvement. Orders increased across all operating regions. The value of net orders grew 17% to $4.2 billion. Cancellation rate of 20% compared with 19% in the year-earlier quarter.
The quarter-end sales order backlog (under contract) rose 7% to 14,618 homes. Backlog value increased 9% to $4.4 billion.
Revenues at the financial services segment increased 29.9% to $86.9 million.
Gross profit on home sales was $614.5 million, up 15.6% year over year. However, gross margin on home sales contracted 10 basis points (bps) year over year to 19.8%.
Homebuilding selling, general and administrative expenses (SG&A) were $294.5 million, up 14.4% from the prior-year quarter. SG&A expenses, as a percentage of homebuilding revenues, were 9.3%, down 20 bps year over year.
Homebuilding pre-tax income rose 14.4% year over year to $322.4 million, while pre-tax margin declined 20 bps owing to lower SG&A expenses. Higher SG&A dragged the result. Pre-tax income from financial services came in at $31.5 million, up 69.4% year over year.
Consolidated pre-tax income was $353.9 million in the quarter, up 18% year over year. Pre-tax profit margin was in line with the year ago figure at 10.9%.
D.R. Horton’s homebuilding cash, cash equivalents and restricted cash totaled $959 million as of Mar 31, 2017, compared with $1,281.3 million as of Sep 30, 2015.
Fiscal 2017 Outlook
The company remains confident about the rest of fiscal 2017 given 27,100 homes in inventory at the end of March and a robust supply of lots. D.R. Horton lifted its fiscal 2017 views on total revenues, homes delivered, SG&A expense, financial services pre-tax profit margin as well as income tax rate.
The company maintains a positive outlook for revenues and profits, both of which are expected to increase double digits, annually.
Total revenue is now projected in the range of $13.6–$14 billion versus prior expectation of $13.4–$13.8 billion. Homebuilding SG&A expenses, as a percentage of homebuilding revenues, is likely to be around 8.8% to 9.1% (versus 9.0% expected earlier).
Home closing is expected to be between 44,500 homes and 46,000 homes (versus 43,500 and 45,500 homes).
Financial services pre-tax margin is likely to be approximately 35%, up from earlier projection of approximately 30%.
Tax rate is likely to be at around 35.5%, up from 35% expected earlier.
Consolidated pre-tax margin guidance is reaffirmed in the band of 11.2% to 11.5%. Home sales gross margin is maintained at 20%. Cash flow from operations is estimated between $300 million and $500 million.
D.R. Horton carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
D.R. Horton, Inc. Price, Consensus and EPS Surprise
D.R. Horton, Inc. Price, Consensus and EPS Surprise | D.R. Horton, Inc. Quote
KB Home KBH reported impressive first-quarter fiscal 2017 earnings of 15 cents per share, surpassing both the Zacks Consensus Estimate and the year-ago profit level of 14 cents by 7.1% (read more: KB Home Beats Q1 Earnings Estimates, Housing Strong).
Upcoming Peer Releases
PulteGroup, Inc. PHM is slated to release its quarterly results on Apr 25. The Zacks Consensus Estimate for earnings is pegged at 28 cents, an increase of 16.7% on a year-over-year basis.
Masco Corporation MAS will release first-quarter 2017 earnings on Apr 25. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 36 cents per share, reflecting 11.3% growth year over year.
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