D.R. Horton

Housing

A reddit comment claimed DR Horton used escalation clauses in their contracts for North Texas.“My realtor mentioned that DR Horton added in an escalation clause to their contracts. This is in North Texas.” (Reddit, 6/6/2021, via internet archive)

D.R. Horton said it was strategically selling homes at a slower paces while passing price increases onto new home buyers without concern for contract cancelation

D.R. Horton’s CEO crowed to analysts that their revenues had increased 24%. “David Auld — President and Chief Executive Officer: Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray and Paul Romanowski, our executive vice president and co-chief operating officers; and Bill Wheat, our executive vice president and chief financial officer. D.R. Horton team delivered an outstanding second quarter, highlighted by a 59% increase in earnings to $4.03 per diluted share. Our consolidated pre-tax income increased 60% to $1.9 billion on a 24% increase in revenues. And our consolidated pre-tax profit margin of 520 basis points to 23.5%. Our homebuilding return on inventory for the trailing 12 months ended March 31st was 40.3%, and our consolidated return on equity for the same period was 34%. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Hortons COO: “Our average closing price for the quarter was $378,200, up 21% from the prior-year quarter, while the average size of our homes closed was down 1%.”“Mike Murray — Executive Vice President and Co-Chief Operating Officer: Earnings for the second quarter of fiscal 2022 increased 59% to $4.03 per diluted share compared to $2.53 per share in the prior-year quarter. Net income for the quarter increased 55% to $1.4 billion, compared to $930 million. Our second quarter home sales revenues increased 22% to $7.5 billion on 19,828 homes closed, up from $6.2 billion on 19,701 homes closed in the prior year. Our average closing price for the quarter was $378,200, up 21% from the prior-year quarter, while the average size of our homes closed was down 1%. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton’s COO said their average sales price was up over 20% from 2021 and “We are continuing to sell homes later in the construction cycle to better ensure the certainty of the home close date for our homebuyers with virtually no sales occurring prior to the start of home construction. “ “Paul Romanowski — Executive Vice President and Co-Chief Operating Officer: Our net sales orders in the second quarter decreased 10% to 24,340 homes, while the value increased 10% from the prior year to $9.7 billion. Our average number of active selling communities increased 1% from the prior-year quarter and was up 4% sequentially. The average sales price of net sales orders in the second quarter was $400,600, up 23% from the prior-year quarter. The cancellation rate for the second quarter was 16%, compared to 15% in the prior-year quarter. New home demand remains very strong despite the recent rise in mortgage rates. We are continuing to sell homes later in the construction cycle to better ensure the certainty of the home close date for our homebuyers with virtually no sales occurring prior to the start of home construction. We expect to continue managing our sales pace in the same manner for the rest of the year. Bill? ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton’s CFO: “The strong demand for homes, combined with a limited supply has allowed us to continue to raise prices and maintain a very low level of sales incentives in most of our communities.” “Bill Wheat — Executive Vice President and Chief Financial Officer: Our gross profit margin on home sales revenues in the second quarter was 28.9%, up 150 basis points sequentially from the December quarter. The increase in our gross margin from December to March reflects the broad strength of the housing market. The strong demand for homes, combined with a limited supply has allowed us to continue to raise prices and maintain a very low level of sales incentives in most of our communities. On a per square foot basis, home sales revenues were up 4.8% sequentially. While stick and brick cost per square foot increased 2.5% and our lot cost increased 2.8%. We expect our cost will continue to increase. However, with the strength of today’s market conditions, we expect most cost pressures to be offset by price increases in the near term. We currently expect our home sales gross margin in the third quarter to be slightly better than the second quarter. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Hortons said it slowed “sales orders based on production capacity… we made the decision in several of our geographies to delay the release of homes until we could give a better delivery date to those customers.” “Mike Murray — Executive Vice President and Co-Chief Operating Officer: Carl, I think it was all our decision to slow sales orders based on production capacity. I think we saw and continue to see very good demand and more buyers, qualified buyers out there for our homes today when we release them for sale. But we did see during the quarter that our cycle times continue to extend, and we made the decision in several of our geographies to delay the release of homes until we could give a better delivery date to those customers and provide a better experience for them in the backlog process. So we saw a very strong demand in the quarter, but we did see the cycle times elongate. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

A D.R. Horton’s executive noted that even if cancelations increased, “for those buyers that do unfortunately fall out because they can’t qualify, there’s no shortage of buyers behind them to take their place.”“Jessica Hansen — Vice President, Investor Relations: Sure, Anthony. I mean we look at a 1% change in our cancellation rate is essentially flat. It’s still abnormally low — historically low. We typically run in the high teens to low 20s. And that’s a can rate we’re very comfortable running at. The main reason continues to be that buyers can’t ultimately qualify for the home purchase. So that 15%, 16%, 17% wherever it falls out each quarter, really no concerns from us on that end. In terms of the rate sensitivity analysis, we did run the same sensitivity as we’ve talked to each of the last few quarters. I think rates have already kind of run-up to where that was run at a couple of weeks ago, as we prepped for this call, but it had only ticked up to, call it, roughly 10% of buyers and backlog today would be at risk. As I mentioned earlier in answer to another question, all of April is already rate locked if we’re going through a mortgage company. So that piece wouldn’t be at risk. And then we also would work to look to move people from a different loan product or see if they could document additional income. And then to kind of second some things that the guys have already said today, for those buyers that do unfortunately fall out because they can’t qualify, there’s no shortage of buyers behind them to take their place.” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton’s CFO: “we have seen consistent ability to raise prices through the quarter, seeing consistent increases in our sales order pricing that then flow through our backlog and through our closing pricing.”“Bill Wheat — Executive Vice President and Chief Financial Officer: Mike, we have seen consistent ability to raise prices through the quarter, seeing consistent increases in our sales order pricing that then flow through our backlog and through our closing pricing. That’s what gives us the confidence to say that our margins are going to be slightly better next quarter because we can see those sales prices coming through in our closings in the next quarter. So to date, we have not seen a change in our ability to raise prices. I think naturally as we look for a little bit longer term with the impact of rates and impact of overall price increases. At some point, we would expect that to moderate. But at this point, we have not seen any signs of that as of yet.” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton reported spending over $600 million on share buybacks and dividends over the fiscal year and authorized another $1 billon in buybacks. “Bill Wheat — Executive Vice President and Chief Financial Officer: At March 31st, our stockholders’ equity was $16.8 billion, and book value per share was $47.66, up 33% from a year ago. For the trailing 12 months ended March, our return on equity was 34%, compared to 27.1% a year ago. During the first six months of the year, our cash used in homebuilding operations was $416 million, which reflects our increased homes and inventory to meet demand and the impact of extended construction cycle times. During the quarter, we paid cash dividends of $79.1 million, and our board has declared a quarterly dividend at the same level as last quarter to be paid in May. We repurchased 3.1 million shares of common stock for $266 million during the quarter for a total of 5.8 million shares repurchased fiscal year to date for $544.2 million, an increase of 30% compared to the same period a year ago. Subsequent to quarter end, our board authorized the repurchase of up to $1 billion of our common stock, replacing our prior authorization. The new authorization has no expiration date. We now expect to reduce our outstanding share count by 3% during fiscal 2022. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)