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Factors Likely to Shape D.R. Horton's (DHI) Q1 Earnings

Zacks Equity Research

D.R. Horton Inc. DHI is scheduled to report first-quarter fiscal 2020 results on Jan 27, before the opening bell.

In the last reported quarter, the company’s earnings and revenues beat the Zacks Consensus Estimate by 8% and 2.7%, respectively. Earnings and revenues of this homebuilding company also grew 11% and 11.7%, respectively, from the year-ago reported figures, courtesy of its industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands.

Markedly, D.R. Horton reported better-than-expected earnings in three of the last four quarters, with the average positive surprise being 8.1%.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been unchanged at 92 cents per share over the past 30 days. This indicates a 21.1% increase from the year-ago earnings of 76 cents per share. The consensus mark for revenues is $3.8 billion, suggesting a 8.4% year-over-year improvement.

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

 

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

D.R. Horton, Inc. price-eps-surprise | D.R. Horton, Inc. Quote

Factors to Consider

Factors like favorable mortgage rates, moderate home prices, industry-leading market share, broad geographic footprint and affordable product offerings across multiple brands are expected to have aided D.R. Horton to generate higher revenues in the first quarter of fiscal 2020.

For the fiscal first quarter, the company expects consolidated revenues in the range of $3.7-$3.8 billion, indicating an increase from $3.52 billion recorded a year ago. It expects homes closed within 12,100-12,400, suggesting growth from 11,500 units closed in the year-ago period. The Zacks Consensus Estimate for homes closed is pegged at 12,236 units, implying an improvement of 6.4% from 11,500 units reported in the year-ago period but a 23.6% decline from 16,024 units in fiscal fourth-quarter 2019.

Overall, the consensus estimate for Homebuilding revenues (accounting for more than 96% of revenues) of $3.6 billion suggests a 6.7% increase from $3.42 billion recorded a year ago but 24.7% decrease sequentially.

Despite higher revenue expectation, D.R. Horton’s earnings are expected to have been affected by gross margin woes. Increased costs, reduced pricing power, and the impact of purchase accounting, warranty and litigation might have had a negative impact on fiscal first-quarter gross margins. Again, rising land/labor and material costs, as well as competitive pricing pressure — which have been causes of concern for homebuilders over the last few quarters — are likely to have impacted the company’s gross margin.

For the fiscal first quarter, it expects gross margin to be 21%, implying an improvement from 20% in the year-ago period but no change from the last reported quarter.

The company expects homebuilding SG&A expenses to be 9.5% of revenues, suggesting no year-over-year change but an increase from 8.5% registered in the last reported quarter.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for D.R. Horton, which shares space with Lennar Corp. LEN in the Zacks Building Products - Home Builders industry, this time around. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive surprise. This is not the case here, as you will see below.

Earnings ESP: D.R. Horton has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

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.

Installed Building Products, Inc. IBP has an Earnings ESP of +3.09% and carries a Zacks Rank #1.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +2.42% and holds a Zacks Rank #2.

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Installed Building Products, Inc. (IBP) : Free Stock Analysis Report
 
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