The nation's largest homebuilder, D.R. Horton (NYSE: DHI), reported solid quarterly results last week (April 28) but also cautioned that it, too, is beginning to feel the economic effects of the coronavirus pandemic.
The Arlington, Texas-based operator of four brands -- D.R. Horton, Emerald Homes, Express Homes, and Freedom Homes -- said net sales orders were up 20% for the three months ending March 31, the second quarter of its 2020 fiscal year, compared to the year-ago period.
Those 20,087 new homes sold helped result in a 37% surge in net income for the quarter year over year to $482.7 million and a 40% increase in per-share net income to $1.30, compared with $0.93 in the second quarter of 2019.
Wall Street had predicted a per-share result of $1.12 and pushed the company's stock up 12% during the trading day the results were announced. But the forecast isn't all sunny. The company said in a press release announcing its results and in a subsequent earnings call that uncertainty caused by the pandemic has prompted it to withdraw its stock guidance for the rest of the year.
Still building, but sales pace showing some decay
D.R. Horton said low interest rates, strong demand, and limited inventory buoyed its results through most of the first three months of the calendar year and that it continues to build where conditions permit. Since construction is deemed essential in most states, that's in nearly all of the company's markets.
But, "as a result of the pandemic, our sales orders began to decrease in late March and into April, and our cancellations have remained elevated throughout April to date," executive vice president and chief financial officer Bill Wheat said in the earnings call.
The company said its month-to-date net sales orders as of Tuesday, April 28, had dropped 11% from the same point in April 2019. But, it added, cancellations typically are higher in the final days of each month, and its weekly net sales order volumes were still higher in the past two weeks compared to the preceding four weeks.A falling tide lowers all boats.
D.R. Horton's strong performance and caution going forward echoed reports from competitors in the same boat. That includes PulteGroup, Inc. (NYSE: PHM), which just reported a sharp drop in sales and, like D.R. Horton, has withdrawn its stock guidance for the year. But unlike its larger rival, PulteGroup has also quit buying back its own stock for now.
D.R. Horton said the average price on net sales orders was up 2% from the year-ago period at $299,700. That jibes with a report last week (April 23) from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) that showed median and average sales prices for new homes remained higher year over year, at $321,400 and $375,300, respectively, for March 2020, compared with $310,600 and $372,700 in March 2019.
But sales nationally fell 15.4% from February to March, and 9.5% year over year in March, to an annualized estimated rate of 627,000 units. And monthly residential construction starts fell off sharply in March, HUD and the Census Bureau reported in mid-April.
Confidence and caution
But D.R. Horton remains confident. "We are well positioned to successfully operate in this uncertain environment with our experienced team, industry-leading market share, broad geographic footprint, and diverse product offerings," Donald R. Horton, the Texas firm's board chairman, said in the press release.
That includes 89 markets in 29 states, where the company closed 59,493 homes in the 12 months ending March 31 at sales prices ranging from $100,000 to more than $1 million. The company also operates mortgage, title, and insurance subsidiaries.
Nonetheless, the big builder's press missive ended with this cautionary note: "The extent to which this impacts the company's operational and financial performance will depend on future developments, including the duration and spread of COVID-19 and the impact on D.R. Horton's customers, trade partners, and employees, all of which is highly uncertain and cannot be predicted."