D.R. Horton Stock Climbs After Earnings Beat Expectations With Revenue Surprise

The home builder reported a net profit of $2.76 a share on revenue of $7.3 billion for its fiscal first quarter ended Dec. 31, beating its guidance for consolidated revenue between $6 billion and $6.8 billion. Analysts polled by FactSet expected per-share earnings of $2.25 on revenue of roughly $6.4 billion.

D.R. Horton
shares were trading 1.7% higher after the market opened Tuesday.

The quarterly results cover a period when rising mortgage rates slowed home buyer activity in the broader housing market. Mortgage rates rose as high as 7.08% during the quarter, according to Freddie Mac’s weekly rates; that weighed on demand and significantly added to the cost of financing a home purchase. At the end of 2022, the volume of mortgage applications was at its lowest level since 1996, according to the Mortgage Bankers Association.

“Beginning in June 2022 and continuing through today, we have seen a moderation in housing demand caused by significant increases in mortgage interest rates and general economic uncertainty,” Donald R. Horton, D.R. Horton’s chairman of the board, said in a statement accompanying the earnings release.

This slowdown was reflected in the company’s new orders: D.R. Horton reported 13,382 net sales orders, down about 38% from the same quarter in 2021. Analysts had anticipated 14,567 new orders, according to FactSet.

However, the company exceeded its home deliveries guidance. D.R. Horton delivered 17,340 homes in the first quarter, higher than the consensus estimate of 15,706. The company had previously guided toward a range of 15,000 to 16,500.

D.R. Horton isn’t the only builder to see macroeconomic headwinds weigh on prospective buyers.
Lennar
(LEN), the nation’s second-largest public builder, in December said new orders had fallen 15% year over year in the quarter ended Nov. 30, while its gross margin on home sales narrowed to 24.8% from 28% one year prior. 
KB Home
(KBH), a smaller builder of customizable homes based in California, saw its net orders dive roughly 80% year over year during the same period. Its housing gross profit margin remained nearly flat from a year earlier, at 22.4%

During Tuesday’s earnings call, Paul Romanowski, D.R. Horton’s executive vice president, said the company was offering incentives, such as mortgage interest-rate locks and buy-downs, which reduces the interest a buyer pays on a mortgage for a set period.

“We are reducing home prices where necessary to optimize the returns on our inventory investments,” he added.

Such actions could weigh on revenue, however, posing a challenge to the company’s goal for slightly higher full-year revenue for fiscal 2023, the company said.

“It is realistic to expect that our full-year revenues will decline year-over-year, given the environment and pricing actions we are taking,” Jessica Hansen, D.R. Horton’s vice president of investor relations, said on the call.

For the current fiscal second quarter, sales volume “will depend on the strength of the spring selling season,” Romanowski said.

Company executives have seen some positive signs in the first weeks of 2023, including an increase in sales activity and a slight improvement in the builder’s cancellation rate, Hansen said.

Net sales orders typically increase by about 50% between the first and second quarter, Hansen said on the call, as buyers return to the market in the spring. January’s sales increase “was a positive early indicator,” Hansen said. “It is still too early to ultimately say what’s going to happen this spring, but it gave us the confidence to say that we could see normal seasonality.”

These indicators also echo recent gains in builder confidence and mortgage applications, which have increased as mortgage rates have declined. Last week, the most recent time period for which data is available, the average mortgage rate on a fixed-rate 30-year home loan was 6.15%, the lowest since September 2022, according to Freddie Mac.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com