Demand Remains Strong for D.R. Horton in Q3 Report

Strong underlying market fundamentals drove “solid results” in the fiscal third quarter for D.R. Horton, including year-over-year growth in home closings and sales orders as well as better-than-expected profits per share.

“Although inflation and mortgage interest rates remained elevated, the supply of both new and existing homes at affordable price points is still limited and the demographics supporting housing demand remained favorable,” president and CEO Paul Romanowski said during the home builder’s earnings call.

The largest company on the 2024 Builder 100 generated home building revenue of $9.2 billion in the third quarter, an increase of 6% compared with the prior-year period. Home closings increased 5% year over year to 24,155, while net sales orders increased 1% to 23,001 homes. Sales order value for D.R. Horton was flat in the third quarter at $8.7 billion.

“Home buyer demand during the spring selling season was good despite continued affordability challenges. With 42,6000 homes in inventory and an average selling price of approximately $380,000, we are well positioned to continue consolidating market share," Romanowski said.

The builder’s cancellation rate was 18% in the quarter, unchanged from the third quarter of 2023 but up sequentially from 15% in the fiscal second quarter of 2024. D.R. Horton’s sales order backlog of homes under contract at June 30 decreased to 16,792 homes with a value of $6.6 billion from 19,186 homes with a value of $7.4 billion in the prior-year period.

“To address affordability, we are still using incentives such as mortgage rate buydowns and we have reduced the prices and sizes of our homes where necessary,” executive vice president and chief financial officer Bill Wheat said during the earnings call. “Although our home sale gross margin improved sequentially this quarter, incentives are elevated and we expect them to remain near these levels assuming similar market conditions and no significant changes in mortgage rates.”

Of the builder’s 42,600 homes in inventory, 26,200 were unsold. Approximately 8,800 of the company’s unsold homes were completed and 990 had been completed for more than six months.

Romanowski said D.R. Horton’s construction cycle times in the fiscal third quarter “improved slightly from the second quarter,” bringing the company below its historical average. The faster construction and cycle times allows the builder to manage homes in inventory more efficiently, he said.

D.R. Horton’s land and lot portfolio at the end of the fiscal third quarter totaled 630,200 lots, of which 24% were owned and 76% were controlled through land and lot purchase contracts.

“We remain focused on our relationships with land developers across the country to maximize returns. These relationships allow us to build more homes on lots developed by others,” executive vice president and chief operating officer Michael Murray said. “Of the homes we closed this quarter, 64% were on a lot developed by either Forestar or a third party.”

In the quarter, D.R. Horton generated profit of $1.35 billion, a 1% increase from the third quarter of 2023. The company reported profits per share of $4.10, a 5% increase on a year-over-year basis and an outperformance of consensus Wall Street projections.

“We are well positioned with our affordable product offerings and flexible lot supply, and we are focused on maximizing returns in each of our communities,” executive chairman David Auld said. “We expect to generate increasing levels of consolidated operating cash flows, and our strong liquidity and low leverage provide us with significant financial flexibility.”

Rental and Forestar Results

D.R. Horton’s rental operations generated revenue of $413.7 million in the third quarter, down from $667.1 million in the same quarter of fiscal 2023. During the quarter, the company sold 790 single-family rental homes for $258.5 million, down from 1,754 homes for $589.6 million in the prior-year period. D.R. Horton sold 610 multifamily rental units for $155.2 million in the quarter, up from 230 units for $77.5 million in the prior-year period.

As of June 30, D.R. Horton had $1.1 billion of single-family rental inventory consisting of 4,540 homes and $2 billion of multifamily property inventory consisting of 11,380 units.

Forestar Group, the publicly traded residential lot development company that is a subsidiary of D.R. Horton, sold 3,255 lots and generated $318.4 million of revenue in the third quarter, down from 3,812 lots and revenue of $368.9 million in the prior-year period.