What DR Horton Earnings Indicate About the Housing Market

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D.R. Horton Inc. (NYSE: DHI) reported first-quarter fiscal 2019 results before markets opened Friday. The homebuilder reported diluted earnings per share (EPS) of $0.76 on revenues of $3.52 billion. In the same period a year ago, D.R. Horton reported EPS of $0.49 on revenue of $3.33 billion. First-quarter results also compare to consensus estimates for EPS of $0.78 and $3.5 billion in revenue.

Homebuilding revenue totaled $3.4 billion, up 6% year over year, and sales closed in the quarter rose 7% to 11,500. Net sales orders increased by 3% to 11,042 with a total value of $3.2 billion, flat with last year’s total.

Chair Donald Horton commented:

Sales prices for both new and existing homes have increased across most of our markets over the past several years, which coupled with rising interest rates has impacted affordability and resulted in some moderation of demand for homes, particularly at higher price points. However, we continue to see good demand and a limited supply of homes at affordable prices across our markets, and economic fundamentals and financing availability remain solid.

2018 was not a good year for homebuilders. D.R. Horton, the largest measured by market cap, has seen its share price drop by about 24% over the past 12 months. Of the six homebuilders we looked at, none has lost less than 22% of its value in the trailing 12 months, and the worst is down nearly 40%.

Extrapolating from the numbers D.R. Horton reports, if home sales are up 7% and homebuilding revenue rose 6%, then the company’s profit per home is likely under pressure. The company does not report its average sales price on a new home.

New orders are up 3%, and the order value is flat, another sign that D.R. Horton may be lowering prices (or building less expensive homes) to offset rising interest rates and materials costs. The cost of sales rose 6.6% year over year, indicating materials costs continue to increase faster than sales prices.

The company did not offer guidance for the current quarter or for the 2019 fiscal year. Analysts are looking for second-quarter EPS of $0.98 and revenue of $4.096 billion. For the full year, estimates call for EPS of $4.24 and revenue of $17.25 billion, both lower than at the end of the prior quarter.

D.R. Horton’s stock traded up about 0.5% in Thursday’s premarket session at $38.50, in a 52-week range of $32.39 to $51.24. The 12-month consensus price target on the stock was $44.53 before this morning’s report, down about 10% from the prior quarter consensus.