D.R. Horton, Inc. — Form 10-Q Summary
Business context and reporting period
Reports the unaudited fiscal first quarter ended December 31, 2023, compared with the three months ended December 31, 2022. D.R. Horton builds homes in 118 markets across 33 states and also operates rental, residential lot development through its 63%-owned Forestar subsidiary, and financial services businesses.
Financial and operating performance
- Revenue rose 6% to $7.73 billion. Pre-tax income fell 2% to $1.25 billion; net income attributable to D.R. Horton fell 1% to $947.4 million. Diluted EPS increased 2% to $2.82.
- Pre-tax margin was 16.1%, down from 17.5%. Homebuilding gross margin on home sales fell to 22.9% from 23.9%; homebuilding pre-tax margin declined to 15.0% from 16.2%.
- Homebuilding closed 19,340 homes, up 12%, while average closing price decreased 3% to $376,200. Net sales orders increased 35% to 18,069 homes; order value rose 38% to $6.79 billion. Backlog declined 11% to 13,965 homes, valued at $5.44 billion.
- Rental revenue fell to $195.3 million from $327.5 million, and pre-tax income fell to $31.3 million from $110.3 million, primarily due to fewer rental closings. Forestar revenue increased 41% to $305.9 million and pre-tax income rose 84% to $51.2 million. Financial services revenue rose 41% to $192.6 million and pre-tax income increased to $66.0 million from $18.2 million.
- Operating cash flow was negative $153.4 million, versus positive $829.1 million a year earlier, reflecting investment in homes, land and rental properties. Investing cash flow was negative $39.3 million; financing cash flow was negative $362.8 million. Cash, cash equivalents and restricted cash totaled $3.34 billion at quarter-end.
- Total assets were $33.38 billion and total inventory was $24.05 billion at December 31. Notes payable were $5.29 billion, versus $5.09 billion at September 30. Debt to total capital was 18.6%; net debt to total capital was 7.8%. Stockholders’ equity was $23.15 billion.
- The company repurchased 3.33 million shares for $398.3 million and paid dividends of $99.9 million. The quarterly dividend was $0.30 per share.
Material changes, outlook, and risks
- Management reported solid new-home demand despite elevated inflation and mortgage rates. Supply-chain disruptions and labor tightness had largely eased, and construction cycle times improved. The company continued to use sales incentives and pricing adjustments to support affordability.
- Management expects incentive levels to remain elevated throughout fiscal 2024 and expects debt to total capital to remain below 20% during fiscal 2024. It cited favorable housing-demand demographics and limited affordable new and existing home supply, but did not provide specific revenue or earnings guidance.
- Homebuilding margin pressure reflected lower home-sale margins, higher SG&A as a percentage of revenue, and higher warranty and construction-defect costs. Consolidated pre-tax income was also weighed down by lower rental earnings.
- Liquidity included $3.34 billion of cash and $1.96 billion available under the homebuilding revolving facility. The rental facility had $950 million outstanding at 7.2%, with $100 million available. The committed mortgage repurchase facility had $1.2 billion outstanding and a February 16, 2024 maturity; refinancing or renewal is important to financial-services liquidity. Management stated it believed available resources and financing access would cover near-term needs and obligations.
- Land and lot purchase contracts represented approximately $22.5 billion of remaining purchase price, supported by $1.9 billion in deposits. Certain contracts are nonrefundable or subject to specific-performance provisions. The company also had $3.2 billion of surety bonds and $253.9 million of letters of credit.
- Legal claims reserves were $814.5 million; the company is largely self-insured for construction-defect exposures and says actual claims and insurance recoveries may differ materially from estimates. It could not reasonably estimate potential losses above recorded reserves. Warranty liabilities were $531.8 million.
- Other risks cited include housing-market cyclicality, mortgage-rate and financing availability, land and inventory exposure, building costs and labor, regulatory matters, weather, and construction-defect claims. Results are seasonal and the quarter is not necessarily indicative of the full fiscal year.
Important facts for investors to verify
- Whether the strong order growth converts into home closings and whether backlog and cancellation trends stabilize.
- Whether elevated incentives and lower average closing prices continue to pressure homebuilding margins.
- Renewal or replacement of the committed mortgage repurchase facility that matured in February 2024, and the cost and availability of financing.
- Cash generation as land, homebuilding and rental inventory investments increase, alongside shareholder returns and debt levels.
- Changes in construction-defect claims, legal reserves, insurance recoveries, and the company’s substantial land-contract commitments.