D.R. Horton's stock dives as lower prices for new homes hurt profits

By Tomi Kilgore

Incentives were increased and home prices were lowered to provide better affordability to homebuyers, CFO Bill Wheat said

Shares of D.R. Horton Inc. were suffering the biggest selloff in nearly four years on Tuesday, after the homebuilder missed profit expectations, as elevated incentives to buy new homes ate into margins.

And given current affordability challenges, that pressure on margins, and therefore profitability, is likely to continue in the near term, the company said.

The stock (DHI) tumbled 9.6% toward a six-week low in midday trading, which puts it on track to suffer the biggest one-day drop since the record 20.2% plunge on March 16, 2020. The selloff comes a day after the stock had closed at a record $157.70.

"To adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to homebuyers," said Chief Financial Officer Bill Wheat, according to an AlphaSense transcript of the post-earnings conference call. "Based on current market conditions, mortgage rates and continued affordability challenges, we expect our incentive levels to remain elevated in the near term."

The company reported net income for the fiscal first quarter to Dec. 31 of $333.3 million, or $2.82 a share, compared with $344.2 million, or $2.79 a share, in the same period a year ago.

That missed the FactSet consensus for earnings per share of $2.87, as home sales gross margin of 22.9%, which was down from 25.1%, fell well short of expectations of 24.2%.

"This wasn't the [D.R. Horton] print we (or the buyside) was expecting," Wells Fargo analyst Zachary Fadem wrote in a note to clients.

That said, Fadem reiterated his overweight rating, and said he sees the stock's weakness

Revenue grew 6.5% to $7.73 billion, above the FactSet consensus of $7.55 billion.

The number of homes closed jumped 11.5% to 19,340, above expectations of 18,731, but the average closing price was down 2.8% to $376,200 to miss forecasts of $381,620.

For the second quarter, the company expects home sales gross margin of 22.6% to 23.1%, which is below the current FactSet consensus of 23.6%.

Meanwhile, the number of homes closed is projected to be 20,000 to 20,500 homes, compared with the FactSet consensus of 18,731, while revenue is guided to be $8.1 billion to $8.3 billion, above Wall Street expectations of $7.94 billion.

D.R. Horton's stock has still soared 39.6% over the past three months, while the iShares U.S. Home Construction ETF ITB has climbed 36.4% and the S&P 500 index SPX has gained 15%.

-Tomi Kilgore

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01-23-24 1253ET

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