D.R. Horton Earnings: Order Growth Continues, but Incentives Are Integral to Maintain Sales Pace

D.R. Horton DHI closed out its fiscal 2023 with good fourth-quarter (ended Sept. 30) results. While homebuilding revenue declined 6% year over year, total revenue increased 9% thanks to robust sales activity from D.R. Horton’s growing multifamily business. And while EPS of $4.45 declined 5% year over year, it topped the FactSet consensus estimate by 12%. After five consecutive quarters of new orders declining year over year, orders turned positive last quarter and a strong rebound continued during the fiscal fourth quarter. Furthermore, management’s fiscal 2024 outlook for home deliveries and consolidated revenue exceeded our previous projections. We’ve raised our fair value estimate approximately 2% to $124 per share primarily due to the time value of money as our forecast adjustments had a net neutral effect on valuation.

Fiscal fourth-quarter new orders increased over 39% year over year (to 18,939) as D.R. Horton’s affordably priced homes continue to resonate with buyers. That said, the year-ago quarter was an easy comparison as fourth-quarter 2022 orders declined 15% year over year. Total new orders in fiscal 2023 increased 3% year over year (to 78,342).

While D.R. Horton has lower price points than many of its competitors, the homebuilder has also been offering sales incentives (primarily mortgage rate buydowns) and is building smaller homes to improve affordability. However, considering higher mortgage rates, management expects sales incentives will remain elevated in 2024, which will be a headwind for both home prices (selling prices are reported net of incentives) and gross margin. Fourth-quarter adjusted home sales gross margin declined 320 basis points year over year to 25.1% due to moderating pricing power and rising lot costs. Nevertheless, this is still a strong level of profitability. That said, management expects a sequential decline in gross margin during first-quarter 2024 as incentives remain elevated.