DR Horton Beats Top-Line Views, Says Homebuilding Demand "Unbelievable"

Homebuilder DR Horton NYSE: DHI topped analysts’ views when it reported its third-quarter Thursday, showing that the housing boom is nowhere close to slowing down. 

The company cited strong new construction as a revenue driver. Earnings came in at $3.06 per share on revenue of $7.3 billion. Those were year-over-year increases of 88% and 35%, respectively.

Shares closed Thursday at $89.64, down $1.83, or 2%. 

According to the earnings release, net sales orders decreased 17% to 17,952 homes, but value increased by 2% to $6.4 billion. That’s compared to 21,519 homes and $6.3 billion in the same quarter last year.

“Housing market conditions remain very robust, with homebuyer demand exceeding our current capacity to deliver homes across all of our markets. As our top priority is to consistently fulfill our commitments to our homebuyers, we have slowed our home sales pace to more closely align to our current production levels, while building out the infrastructure needed to support a higher level of home starts,” said Chairman Donald R. Horton, in the earnings release.

The company updated its full-year guidance, saying it now expects revenue between  $27.6 billion and $28.1 billion, based on closing on sales of 83,000 to 84,500 homes. 

In its earnings call, Jessica Hansen, the company’s vice president of investor relations, said the company expects fourth-quarter revenue between $7.9 billion to $8.4 billion on sales of 23,000 to 24,500 homes.

The company is operating with a backlog, and said it to address that, it’s slowing its home sales pace to better align with production levels, “while building out the infrastructure needed to support a higher level of home starts.” 

“We are also selling homes later in the construction cycle when we can better ensure the certainty of the home close date for our homebuyers,” said Horton. 

Those comments may have scared off investors Thursday looking for more unbridled growth. However, the business case for DR Horton remains remarkable. 

If you’ve casually following the news about homes being snapped up as soon as they’re on the market, DR Horton’s report today confirmed that phenomenon. 

“Through our history, to have somebody walk into our models and to tell them, we don't have a house for you to buy today is something that is foreign to us and is as difficult as anything I've ever seen on our salespeople,” said CEO David Auld in the earnings call. 

“It’s a market I've never seen. Demand is just unbelievable today,” he added.

The company’s report arrived the day after homebuilding industry data researcher Zonda issued its New Home Pending Sales Index for June. 

Year-over-year new home sales were up 2.4% and month–over–month sales rose 0.8% in June. 

Zonda’s findings included:

• After rising off the bottom in May of last year, June 2020 marked the beginning of the current housing boom in metro areas including  Salt Lake City, Phoenix and Austin. Zonda found these early-to-recover markets are now experiencing the largest year-over-year declines as builders hurry to replenish their housing inventory. In other words, demand is still there, but builders can’t keep up. 
• Other markets like New York, Los Angeles and San Francisco experienced more severe Covid restrictions, so demand for housing lagged other cities. These cities are now rebounding and showing strong year-over-year gains. 
• The industry should expect year-over-year declines in the months ahead, largely due to comparisons against very strong months in 2020, paired with sales caps and supply limitations.

For DR Horton and other homebuilders, that news would seem to bode well.

DR Horton shares have been consolidating since mid-May, and are finding support above their 200-day moving average. The stock may offer a new buy point above $106.89, or perhaps sooner if it goes on to form a cup with handle pattern.