D.R. Horton, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2024. D.R. Horton is a national homebuilder operating in 119 markets across 33 states, with rental, residential lot development (62%-owned Forestar) and financial services businesses. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Three months ended March 31, 2024 | Six months ended March 31, 2024 |
|---|---|---|
| Revenue | $9.11 billion, up 14% year over year | $16.83 billion, up 11% |
| Income before taxes | $1.53 billion, up 23%; 16.8% of revenue versus 15.6% | $2.78 billion, up 10%; 16.5% of revenue, unchanged |
| Net income attributable to D.R. Horton | $1.17 billion, up 24% | $2.12 billion, up 11% |
| Diluted EPS | $3.52, up 29% | $6.34, up 15% |
| Homebuilding results | Revenue $8.47 billion; pretax income $1.36 billion; pretax margin 16.0% versus 14.3% | Revenue $15.77 billion; pretax income $2.45 billion; pretax margin 15.6% versus 15.2% |
- Home sales: In the quarter, 22,548 homes closed, up 15%, while average closing price declined 1% to $375,500. Home sales gross margin improved to 23.2% from 21.6%. Six-month closings rose 13% to 41,888; average price declined 2% to $375,800.
- Orders and backlog: Quarterly net orders rose 14% to 26,456 homes; order value increased 17% to $10.1 billion. Six-month net orders increased 22% to 44,525. March 31 backlog was 17,873 homes, down 7% year over year, valued at $7.0 billion, down 5%.
- Other segments: Quarterly rental revenue rose to $371.3 million, but pretax income slipped to $33.3 million from $34.6 million. Forestar quarterly revenue was $333.8 million and pretax income $58.9 million, up 64%. Financial services revenue was $225.6 million, while pretax income declined 9% to $78.0 million. For the six months, rental pretax income fell to $64.6 million from $144.9 million; Forestar pretax income rose to $110.1 million and financial services to $144.0 million.
- Cash flow: Six-month operating cash flow was negative $470.1 million, versus positive $1.47 billion a year earlier. Increased investment in homes, land/lots and rental properties contributed; homebuilding operations generated $408.3 million, while rental and Forestar used $653.9 million and $216.0 million, respectively. Investing cash outflow was $66.0 million; financing cash outflow was $270.6 million.
- Liquidity and debt: March 31 cash and cash equivalents were $3.06 billion ($3.09 billion including restricted cash), down from $3.87 billion at September 30, 2023. Notes payable were $5.94 billion, up from $5.09 billion. Debt-to-total-capital was 20.0% and net debt-to-total-capital 10.8%, versus 18.3% and 5.1% at fiscal year-end. The homebuilding revolver had $1.98 billion available; rental revolver availability was $65 million; Forestar revolver availability was $382 million. The company reported covenant compliance.
- Balance sheet and capital returns: Total assets were $34.40 billion, including $24.84 billion of inventory; total equity was $24.30 billion. The company repurchased 6.1 million shares for $800.5 million in the six-month period and paid $199.1 million in dividends. $901.1 million remained under the $1.5 billion buyback authorization. Quarterly dividend was $0.30 per share.
Changes, outlook and management commentary
- Growth in home closings drove higher revenue and homebuilding profits. Average selling prices declined, but homebuilding gross margins improved as average home costs fell relative to prices.
- Management said demand remained solid despite elevated mortgage rates and inflation; quarterly net orders increased 46% from the first quarter. The company continues to use pricing adjustments and incentives, which it expects to remain elevated through fiscal 2024.
- Management cited limited affordable new- and existing-home supply, favorable housing-demand demographics, and largely normalized construction cycle times. It plans to adjust prices, incentives, sales pace, and inventory to local demand and emphasizes buying finished lots from developers where possible.
- Management expects debt-to-total-capital to remain at or below 20% throughout fiscal 2024 and intends to keep it below 25% over the long term. The filing does not provide a clear full-year revenue or earnings forecast. Management cautions that seasonal patterns generally result in more closings and higher revenue and pretax income in fiscal Q3 and Q4.
Risks, contingencies and unusual items
- Higher interest rates, affordability pressures, economic volatility, housing-market cyclicality, access to mortgage financing, and changes in land, labor, material costs or regulatory approvals could affect demand, margins and liquidity.
- Legal-claims reserves were $849.3 million at March 31, 2024, primarily for construction-defect matters; estimated insurance receivables were $134.8 million. The company is largely self-insured for construction-defect exposures and says actual costs or recoveries could differ significantly; it cannot reasonably estimate losses beyond recorded reserves.
- Warranty liability was $544.6 million. Land and lot purchase contracts carried $1.9 billion of deposits against approximately $23.1 billion of remaining purchase commitments; $268.3 million of remaining purchase price was subject to specific-performance provisions.
- Quarterly and six-month inventory and land-option charges were $13.6 million and $19.6 million, respectively. Management warns prolonged adverse housing or economic conditions could trigger additional, potentially significant impairment charges.
- An April 8, 2024 stormwater-compliance consent decree, subject to final court approval, followed notices dating to 2014. The penalty and environmental project are not expected to exceed $1 million; ongoing reporting and potential stipulated penalties apply.
- Approximately $2.6 billion of notes payable was due within 12 months, including $1.9 billion under mortgage repurchase facilities. The committed mortgage repurchase facility matures February 13, 2025; continued access or renewal is important to the financial-services business.
Important facts for investors to verify
- Whether order growth converts to closings, given backlog decline and contract cancellation exposure; track incentives, average selling prices and homebuilding margins.
- Whether operating cash flow recovers after substantial land, homebuilding and rental investment, and how inventory growth affects cash needs.
- Debt levels, near-term maturities, mortgage-facility renewal and capacity, borrowing costs, and the company’s ability to maintain its stated leverage outlook.
- Changes in construction-defect and warranty claims, reserve adequacy and insurance recoveries, as well as potential inventory impairments and land-contract exposure.
- Rental-segment returns and financial-services profitability, which weakened in the quarter or six-month period despite revenue growth in some operations.