Yahoo Finance D.R. Horton (NYSE:DHI) Beats Q2 Sales Targets
Homebuilder (NYSE:DHI) announced better-than-expected results in Q2 CY2024, with revenue up 2.5% year on year to $9.97 billion. The company expects the full year's revenue to be around $37 billion, in line with analysts' estimates. It made a GAAP profit of $4.10 per share, improving from its profit of $3.90 per share in the same quarter last year.
Is now the time to buy D.R. Horton? Find out in our full research report.
D.R. Horton (DHI) Q2 CY2024 Highlights:
Revenue: $9.97 billion vs analyst estimates of $9.61 billion (3.7% beat)
Full year revenue guidance lowered to $36.0 billion from $36.2 billion (below analyst estimates)
EPS: $4.10 vs analyst estimates of $3.79 (8.2% beat)
Gross Margin (GAAP): 26.5%, up from 25.3% in the same quarter last year
Backlog: $6.6 billion at quarter end, down 11.4% year on year (miss)
Market Capitalization: $51.87 billion
David Auld, Executive Chairman, said, “The D.R. Horton team delivered strong results in our third fiscal quarter of 2024, highlighted by earnings of $4.10 per diluted share, up 5% from the same quarter last year. Consolidated pre-tax income was $1.8 billion on revenues of $10.0 billion, with a pre-tax profit margin of 18.1%. Although inflation and mortgage interest rates remain elevated, the supply of both new and existing homes at affordable price points is still limited, and demographics supporting housing demand continue to be favorable.
One of the largest homebuilding companies in the US, DR Horton (NYSE:DHI) builds a variety of new construction homes across multiple markets.
Home Builders
Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Luckily, D.R. Horton's sales grew at an incredible 16.9% compounded annual growth rate over the last five years. This shows it expanded quickly, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. D.R. Horton's annualized revenue growth of 8.1% over the last two years is below its five-year trend, but we still think the results were respectable.
D.R. Horton also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. D.R. Horton's backlog reached $6.6 billion in the latest quarter and averaged 24.5% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies D.R. Horton was operating efficiently but raises questions about the health of its sales pipeline.
This quarter, D.R. Horton reported reasonable year-on-year revenue growth of 2.5%, and its $9.97 billion of revenue topped Wall Street's estimates by 3.7%. Looking ahead, Wall Street expects sales to grow 3.4% over the next 12 months.
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Operating Margin
D.R. Horton has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.3%. Furthermore, D.R. Horton's operating profitability was impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, D.R. Horton's annual operating margin rose by 4.3 percentage points over the last five years, showing its efficiency has improved.
In Q2, D.R. Horton generated an operating profit margin of 17.2%, down 1.1 percentage points year on year. Conversely, the company's revenue and gross margin actually rose, so we can assume it was recently less efficient because its general expenses (sales and marketing, administrative overhead) grew faster than its revenue.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
D.R. Horton's EPS grew at an astounding 29% compounded annual growth rate over the last five years, higher than its 16.9% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into D.R. Horton's earnings quality to better understand the drivers of its performance. As we mentioned earlier, D.R. Horton's operating margin declined this quarter but expanded by 4.3 percentage points over the last five years. Its share count also shrank by 12.4%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For D.R. Horton, its two-year annual EPS declines of 2.2% show its recent history was to blame for its underperformance over the last five years. We hope D.R. Horton can return to earnings growth in the future.
In Q2, D.R. Horton reported EPS at $4.10, up from $3.90 in the same quarter last year. This print beat analysts' estimates by 8.2%. Over the next 12 months, Wall Street expects D.R. Horton's EPS of $14.89 in the last year to stay about the same.
Key Takeaways from D.R. Horton's Q2 Results
We liked that D.R. Horton beat analysts' revenue expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. On the other hand, its backlog, and since this is a leading indicator of revenue, it is a bad sign for future topline trends. As such, the company lowered full year revenue guidance. Overall, this was a mediocre quarter for D.R. Horton. The stock remained flat at $157.02 immediately following the results.
So should you invest in D.R. Horton right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
