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Why D.R. Horton reported a big increase in revenues

Brent Nyitray, CFA, MBA

A key guide to D.R. Horton and its 3Q14 earnings (Part 2 of 5)

(Continued from Part 1)

Third quarter revenues come in well in excess of expectations

D.R. Horton (DHI) reported third quarter revenues of $2.1 billion, which was a 28% increase on a year-over-year basis and a sequential increase of about 24%. Revenues came in line with Wall Street expectations.

Orders rise in both dollars and units

Net sales orders for the first quarter rose 25% on a unit basis to 8,551 homes and 32% in dollar terms to $2.4 billion. The cancellation rate was 24%. Lennar (LEN) also reported increases in orders, along with increases in prices. PulteGroup (PHM) reported a decrease in orders on a unit basis.

Backlog increased as well, which bodes well for the spring selling season

Backlog increased 15% in unit terms, from 9,911 to 11,365, and 26% in dollar terms, from $2.6 billion to $3.4 billion. Backlog is an indicator of future revenues, which is an important statistic that investors should track.

Outlook for the near future

Donald R. Horton, chairman of the board, said this about the quarter: “For the 12th consecutive year, Builder Magazine ranked D.R. Horton as the largest homebuilder in the United States. Our position as the largest and most geographically diverse homebuilder provides a strong platform for us to compete for new home sales, evidenced by the 32% increase in the value of our net sales orders, 28% increase in our home sales revenue and the 26% increase in the value of our sales order backlog this quarter as compared to the prior year quarter.”

In spite of the revenue beat, the earnings per share number missed expectations and the stock was sold off. On how interest rates are affecting sales, the company said that increasing rates are having less of an effect as borrowers become used to the idea of higher rates. If anything, the company views jobs as the biggest driver of its business—not interest rates. Other builders such as KB Home (KBH) have echoed similar sentiments on its earnings calls.

Investors who want to invest in the homebuilding sector as a whole should look at the SPDR S&P Homebuilders ETF (XHB).

Continue to Part 3

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