While the largest U.S. luxury homebuilder, Toll Brothers (TOL, Financial), posted the preliminary fourth-quarter report card on November 10 exciting analysts, D.R. Horton (DHI, Financial), the largest U.S. homebuilder by revenue, posted the actual figures for the fourth quarter on November 11 which were pretty impressive and did confirm the fact that the housing sector is on a revival phase in the U.S. The CEO is optimistic on the company moves and stated, “We feel pretty good about kind of where we are in the market and what’s taking place out there, If we just execute and do what we can do on a day-to-day basis, we should have a great three-year to five-year run.” Let’s take a sneak peek into the financial playbook of the company and determine the key takeaways from the quarter.
The quarter numbers
Net income was $166.3 million, or $0.45 a share for the three months ended September 30, compared with $139.5 million, or $0.40 a share, a year earlier. The company just faced a shift in management roles with Donald Tomnitz stepping down from the position of CEO at the end of the quarter and his successor David Auld taking the chair. During the quarter, the company has increased buyer incentives to boost sales. This has led to improvement in order count that rose to 7,135 homes with a value of $2 billion, compared with 5,160 homes valued at $1.4 billion a year ago. In fact the builder has completed 8,612 sales, up 25% from the same period in the previous fiscal year.
Home building revenue rose to $2.4 billion, from $1.8 billion reported a year back. Backlog value grew 29% to $2.9 billion except the Southwest backlog has increased in all the regions. While the value of the net sales orders in the fourth quarter rose 41% from the year-ago quarter, homes actually sold during the quarter rose by 38%.
The fiscal’s consolidated numbers
For the fiscal year, the company’s pre-tax income increased 24% to $814.2 million, compared to $657.8 million in the previous fiscal year. The yearly figure included $85.2 million of pre-tax inventory and land option charges to cost of sales, compared to $31.1 million reported a year earlier.
Net income came in at $533.5 million or $1.50 a share, from $462.7 million or $1.33 a share, reported in the previous fiscal year. Homes closed during the fiscal year stood at 28,670 or 19% higher compared to 24,155 homes in fiscal 2013.
Net sales orders for the fiscal year grew 18% to 29,709 homes from 25,120 homes in the previous fiscal year. Net sales order value stood at $8.3 billion, a 27% jump from that of the earlier year.
D.R. Horton’s chairman stated, “With the largest market share in company history and 46% more homes closed than any other builder in the most recently reported 12-month period, D.R. Horton has solidified its position to be the nation’s largest builder for the 13th consecutive year in calendar 2014. We completed fiscal 2014 with strong profitability in our fourth quarter with $250.8 million of pre-tax income and a 10.1% pre-tax operating margin. Net homes sold, closed and in backlog all increased by double-digit percentages in both the fourth quarter and the full fiscal year. … With a 29% increase in our beginning backlog value and a greater than 20% year-over-year increase in our October net sales orders, we are off to a great start in fiscal 2015.”
Future outlook is rosy
For fiscal 2015, D.R. Horton expects to complete sales on 34,500 to 37,500 homes for $9.5 billion to $10.5 billion, up from this year’s 28,670 houses for $7.8 billion. The gross sales margin would be 19.5% to 20% in the first quarter of 2015 fiscal year which can be compared with 20.5% in the latest quarter. During the investor presentation CEO, David Auld stated, “We are well-positioned to continue to grow both our revenues and pre-tax profits at a double-digit pace with our solid balance sheet, industry-leading market share, broad geographic footprint, diversified product offerings across our three brands and our inventories of homes and finished lots…”
Cash position is safe
The company ended the year with $632.5 million cash and net homebuilding debt to total capital of 34.5%. The company has declared a quarterly dividend of $0.0625 per common share which has been welcome by its investors who were keen to find out the performance of the company in the quarter. This dividend would be payable on December 15 to the stockholders.
Final word
As the craze for new houses is building up in the U.S., and annual home sales have been the fastest in the past six years, homebuilders such as D.R.Horton stand to benefit from such a situation. In fact, soon after the results release the stock jumped 2.2% to close at $23.95, the highest since July 23. The shares were up 7.3% this year, while the S&P Homebuilding Index has risen only 2.7%. Thus, investors do have several reasons to rejoice at this point, and expectations are building up on the company’s better performance in the coming future. Let’s stay tuned and keep an eye on the company’s future moves.
