D.R. Horton, Inc. (DHI) 2024 Q3 Earnings Call Summary

Optimistic Highlights

• Solid Q3 Results: Earnings increased to $4.10 per diluted share, a 5% increase from the prior year, with consolidated pre-tax income of $1.8 billion.
• Strong Cash Flow: Generated $972 million of cash flow from home building operations and $228 million consolidated cash flow.
• Efficient Capital Management: Home building return on inventory was 29.5%, and return on equity was 21.5%.
• Improved Construction Cycle Times: Average construction cycle times are back to normal, enhancing housing inventory turns.
• Strategic Lot Positioning: Home building lot position consisted of approximately 630,000 lots, with a focus on maximizing returns through relationships with land developers.

Pessimistic Highlights

• Market Challenges: Inflation and mortgage interest rates remain elevated, posing affordability challenges despite favorable demographics supporting housing demand.
• Increased Cancellation Rate: The cancellation rate for the quarter was 18%, up from 15% sequentially.
• Elevated Incentives: To address affordability, incentives such as mortgage rate buy downs are being used, with expectations for them to remain near current levels.

Company Outlook

• Q4 Expectations: Anticipate consolidated revenues of $10 billion to $10.4 billion with home sales gross margin around 24%.
• Fiscal 2024 Projections: Expect to generate consolidated revenues of $36.8 to $37.2 billion and close 90,000 to 90,500 homes.
• Increased Capital Returns: Plan to repurchase approximately $1.8 billion of common stock for the full year, with a new share repurchase authorization totaling $4 billion.

Q & A Highlights

• Q: Can you discuss absorptions and margin outlook? (John Lovallo, UBS)

  A: We balance price and pace for returns, responding to fluctuating interest rates and demand. Expect similar market conditions and no significant changes in mortgage rates. (Paul Romanowski)

• Q: How does existing home inventory impact orders in Southeast and South Central? (John Lovallo, UBS)

  A: Inventory increases have not significantly impacted sales. Demand remains strong, especially in affordable price points. (Paul Romanowski)

• Q: What's the inter-quarter sales and closings rate? (Carl Reichardt, BTIG)

  A: With volatile interest rates, we're seeing a high level of homes sold and closed in the same quarter. Focused on a start pace to drive closings. (Paul Romanowski)

• Q: What's the expectation for cash in and out of land deals? (Carl Reichardt, BTIG)

  A: We aim for a 24-month cashback on land deals, maintaining this as an underwriting standard despite longer entitlement times. (Paul Romanowski)

• Q: Can you discuss cash flow expectations and spec inventory levels? (Stephen Kim, Evercore ISI)

  A: Anticipate increased consolidated cash flow next year, with no specific target for spec levels as it varies by community. Focus on turning houses faster. (Jessica Hansen)

• Q: What's driving the increase in finished spec inventory? (Matthew Bouley, Barclays)

  A: Improved cycle times and efficiency in construction process. Not focused on the percentage of completed specs but on managing aged inventory. (Paul Romanowski)

• Q: How are you managing lot costs and the health of your land banking pipeline? (Anthony Pettinari, Citi)

  A: Lot costs continue to rise, with a focus on relationships with lot developers to maximize returns. (Michael Murray)

• Q: What's the plan for 4 Star and the rental segment? (Buck Horne, Raymond James)

  A: 4 Star is a key part of our strategy, with no immediate plans for recapitalization. Rental inventory levels are expected to remain stable. (Paul Romanowski)