HORTON D R INC quarterly report, Q3 FY2023

Vollständiges Dokument

D.R. Horton, Inc. — Q3 FY2023 10-Q

Reporting period: Quarter and nine months ended June 30, 2023. Unaudited results. D.R. Horton is a national homebuilder operating in 113 markets across 33 states, with homebuilding, lot development, financial services and rental businesses.

Financial performance

  • Quarter: Revenue rose 11% to $9.73 billion, while pretax income fell 18% to $1.78 billion. Net income attributable to D.R. Horton declined 19% to $1.34 billion; diluted EPS fell 16% to $3.90.
  • Nine months: Revenue increased 5% to $24.96 billion. Pretax income fell 23% to $4.30 billion, net income attributable to D.R. Horton fell 23% to $3.24 billion, and diluted EPS declined 21% to $9.39.
  • Margins: Consolidated pretax margin was 18.3% for the quarter versus 24.8% a year ago, and 17.2% for nine months versus 23.3%. Home sales gross margin fell to 23.3% from 30.1% for the quarter and to 22.9% from 28.9% for nine months.
  • Cash flow: Operating cash flow was $2.26 billion for nine months, compared with $562.8 million used in the prior-year period. Investing activities used $308.5 million and financing activities used $1.12 billion. Cash, cash equivalents and restricted cash ended at $3.41 billion.
  • Balance sheet and liquidity: Total notes payable were $6.11 billion and total equity was $22.08 billion at June 30. Debt to total capital was 22.0%; net debt to total capital was 11.2%. The homebuilding revolver had no borrowings and $1.97 billion available; Forestar had $380.2 million available. DRH Rental had $1.0 billion drawn on its $1.025 billion facility, leaving $25 million available.
  • Capital returns: The company repurchased 7.7 million shares for $764.2 million and paid $256.9 million in dividends during the nine months. $657.1 million remained under the $1.0 billion stock-repurchase authorization at quarter-end.

Operating trends and changes versus prior year

  • Quarterly homebuilding revenue grew 5%; closings rose 8% to 22,985, while average closing price fell 3% to $378,600. Net sales orders increased 37% to 22,879 homes, but backlog fell 34% to 19,186 homes and 38% in value to $7.45 billion.
  • For nine months, home closings rose 1% to 59,989 and homebuilding revenue increased 2%. Net sales orders fell 5% to 59,403 homes and 11% in value. Homebuilding pretax income declined to $3.63 billion from $4.94 billion.
  • Rental revenue increased sharply, to $667.1 million for the quarter and $1.22 billion for nine months, largely reflecting higher single-family rental home sales. Rental pretax income was $162.1 million for the quarter and $307.0 million for nine months.
  • Financial services revenue fell 10% for the quarter and 12% for nine months; pretax income fell 27% and 31%, respectively, as lower mortgage-sale gains and higher expenses weighed on results. Forestar nine-month revenue fell 22% and pretax income fell to $126.2 million from $169.4 million.
  • Operating cash flow improved substantially year over year, principally because construction-in-progress and finished-home inventory declined, compared with a large inventory build in the prior-year period. Rental inventory investment continued to use cash.

Outlook, commentary, risks and unusual items

  • Management said demand improved in the second and third quarters, supported by seasonal factors, incentives and pricing adjustments. It cited limited affordable housing supply and favorable housing-demand demographics, while noting elevated mortgage rates and economic uncertainty.
  • Management expects to maintain a higher level of incentives through fiscal 2023 than in fiscal 2022. It said margins improved sequentially in Q3 as pricing and incentives stabilized and some construction costs eased. No specific revenue or earnings guidance was provided.
  • Management expects homebuilding debt to total capital to remain below 15% through fiscal 2023 and 2024, versus 11.1% at June 30. The company said existing resources, credit facilities and capital-market access should cover near-term needs and debt obligations.
  • In July 2023, after quarter-end, the company redeemed $400 million of 5.75% senior notes due August 2023. It had repaid $300 million of 4.75% notes at maturity in February.
  • The company acquired Riggins Custom Homes for approximately $107 million in December 2022 and Truland Homes for approximately $100 million in June 2023. Truland’s purchase-price allocation remained in progress at filing.
  • Land and inventory charges totaled $62.2 million for nine months, including $14.0 million of impairment charges and $48.2 million of earnest-money and pre-acquisition write-offs. Management warned that prolonged adverse housing or economic conditions could lead to further, potentially significant, impairments.
  • Legal-claim reserves were $796.2 million at June 30, mostly for construction-defect matters, and warranty liabilities were $493.4 million. Management noted significant estimation uncertainty and said actual claims, costs or insurance recoveries could differ materially from estimates.
  • Land and lot purchase contracts carried approximately $19.8 billion of remaining purchase price, supported by $1.7 billion of deposits; most are expected to be purchased within three years. A limited portion, with $45.7 million of remaining purchase price, was subject to specific-performance provisions.
  • Other risks include housing-market cyclicality, interest rates and mortgage availability, construction costs and labor, land and rental inventory exposure, debt-covenant compliance, weather and natural disasters, and regulatory, warranty and litigation matters. The filing states that results are seasonal and interim results may not represent the full fiscal year.

Important facts for investors to verify

  • Whether order growth translates into closings, and how backlog, cancellations and average selling prices evolve.
  • Whether homebuilding gross margins stabilize or continue to face pressure from incentives, pricing and build costs.
  • Liquidity and refinancing exposure, particularly the near-full rental revolver and mortgage repurchase facilities, including their maturities and borrowing costs.
  • Progress on converting the $19.8 billion land-contract pipeline into purchases, and any changes in deposits, write-offs or impairment charges.
  • Developments in construction-defect claims, the adequacy of the $796.2 million legal reserve, and insurance recoveries.
  • Rental property sales, inventory growth and cash requirements, including whether rental operations generate sustainable returns.