Shares of D.R. Horton (DHI 1.70%), the nation’s biggest homebuilder, were falling this week after the company posted disappointing estimates in its fiscal first-quarter earnings report.
The news comes after homebuilder stocks like D.R. Horton have seen a dramatic increase in profits over the last year or two due to a shortage of available housing and an unwillingness of homeowners to sell and lose their low-priced mortgages, creating demand for new homes.
However, the company missed estimates on the bottom line in its earnings report, and decelerating revenue growth also seemed to spook the market. As a result, the stock was down 8.8% for the week, according to data from S&P Global Market Intelligence.
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Horton has a good quarter, but not good enough
Revenue growth is slowing down at D.R. Horton and other homebuilders after an earlier boom, and investors seem to be adjusting their expectations.
Horton said revenue in the quarter rose 6% to $7.73 billion, which beat estimates at $7.6 billion. Other key metrics showed solid growth as well, as homes closed rose 12% to 19,340, or an 8% increase in value to $7.3 billion. Net sales orders jumped 38% to $6.8 billion, showing strong demand, though its backlog fell by 12% as it built more homes than were ordered.
Horton’s margins took a hit in the quarter, which seemed to be due to rising labor and material costs, and its operating income fell slightly from $1.27 billion to $1.25 billion. Though net income was down slightly, earnings per share improved due to a decline in shares outstanding, rising from $2.76 to $2.82. That missed estimates at $2.88.
The company also repurchased nearly $400 million worth of stock in the quarter as it continues to return capital to shareholders through both dividends and share buybacks.
Chairman Donald R. Horton said, “We are well-positioned to meet changing market conditions with our affordable product offerings and flexible lot supply and are focused on turning our inventory to maximize returns and capital efficiency in each of our communities.”
What’s next for D.R. Horton
The company raised its revenue guidance modestly for the year, calling for $36 billion to $37.3 billion, up from a previous range of $36 billion to $37 billion. However, that forecast implies revenue growth will continue to slow, increasing just 3%.
While there wasn’t anything particularly disappointing about the report, the stock seems to be returning to its mean valuation. Still, the estimated shortage of 4 million homes in the U.S. should fuel continuing demand for D.R. Horton’s services.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
