D.R. Horton, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022. Comparisons are with the corresponding 2021 periods unless otherwise noted. Amounts are in U.S. dollars.
Business context and results
D.R. Horton is a U.S. homebuilder operating in 104 markets across 32 states, with additional residential lot development (Forestar), mortgage and title services, and rental operations.
- Quarter: Revenue rose 24% to $8.0 billion; pretax income increased 60% to $1.88 billion; net income attributable to D.R. Horton rose 55% to $1.44 billion. Diluted EPS was $4.03, up from $2.53.
- Six months: Revenue increased 22% to $15.05 billion; pretax income rose 53% to $3.38 billion; net income attributable to D.R. Horton increased 50% to $2.58 billion. Diluted EPS was $7.20, up from $4.67.
- Homebuilding: Six-month home sales revenue rose 19% to $14.16 billion despite homes closed declining 1% to 38,224; average closing price increased 20% to $370,300. Home sales gross margin improved to 28.2% from 24.4%, and homebuilding pretax margin rose to 21.0% from 16.6%.
- Other segments: Forestar six-month revenue increased 40% to $829.2 million and pretax income to $116.7 million. Financial services revenue fell 1% to $406.4 million and pretax income declined 17% to $159.9 million. Rental revenue was $379.4 million and pretax income was $172.5 million, compared with $31.8 million and $2.2 million, respectively, in the prior-year period.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was negative $834.6 million, versus negative $154.9 million a year earlier. Higher investment in homes under construction and rental properties contributed to cash use. Investing cash outflow was $68.7 million; financing cash outflow was $644.8 million.
- Cash and cash equivalents were $1.66 billion at March 31, down from $3.21 billion at September 30, 2021. Total inventory increased to $19.85 billion from $16.48 billion, including rental properties of $1.48 billion.
- Notes payable totaled $5.57 billion, up from $5.41 billion. Debt to total capital was 24.9%; net debt to total capital increased to 18.9% from 12.9% at September 30. The company reported $2.4 billion of debt due within 12 months, including $1.6 billion under the mortgage repurchase facility.
- The homebuilding revolver had $2.0 billion of available capacity; Forestar had $349.5 million available. DRH Rental’s new facility had $486 million of borrowing-base-limited availability and no borrowings. The company and relevant subsidiaries reported compliance with debt covenants.
- Six-month share repurchases were $544.2 million; dividends paid were $159.2 million. An April 2022 authorization replaced the nearly exhausted $1.0 billion share repurchase authorization with a new $1.0 billion authorization.
Changes, outlook and risks
- Net sales orders declined 10% in the quarter and 3% for six months, although their value rose 10% and 18%, respectively, reflecting higher average selling prices. Backlog units fell 6% year over year, while backlog value increased 15% to $13.3 billion.
- Management cited strong demand, but said materials shortages and tight labor had lengthened construction cycles. It was limiting sales pace to align orders with production and expected to continue doing so near term. Management expected more homes to close in fiscal 2022 than in fiscal 2021; no specific full-year financial guidance was provided.
- Inflation, rising mortgage rates, affordability, supply-chain and labor constraints, and potential changes in home demand could affect sales, margins and inventory values. Management noted margins could decline if demand weakens. The company also identified mortgage-market and refinancing exposure, seasonal variability, and legal, warranty and construction-defect risks.
- Legal-claims reserves were $617.1 million and warranty liabilities were $407.8 million at March 31. Management said it could not reasonably estimate losses above recorded legal reserves; actual claims and insurance recoveries may differ materially.
- In April 2022, D.R. Horton agreed to acquire Vidler Water Resources for $15.75 per share in cash, an estimated equity value of approximately $291 million, subject to customary closing conditions. The filing also notes the federal energy-efficient homes tax credit expired for homes closed after December 31, 2021.
Important facts for investors to verify
- Whether higher interest rates and affordability pressures weaken orders, increase cancellations, or reduce selling prices and homebuilding margins.
- Whether supply-chain and labor constraints ease sufficiently to convert backlog into closings, and how inventory growth affects operating cash flow.
- Near-term debt maturities, mortgage repurchase facility renewal and capacity, and liquidity after continued investment and shareholder returns.
- Changes in warranty and construction-defect claims, reserve adequacy, and potential outcomes beyond recorded legal reserves.
- Vidler acquisition completion, consideration and subsequent effects on capital allocation.