D.R. Horton's adjusted earnings of $0.32 per share in the third
quarter of 2014 missed the Zacks Consensus Estimate by 34.7% and
declined 23.8% year over year. Higher incentives, reduced gross
margins, higher SG&A ratio and massive inventory/land
impairment charges in the Chicago market hurt quarterly earnings.
In an effort to improve the sales pace in the quarter, management
increased incentives. Though the strategy improved order trends in
the quarter, it took a toll on gross margins. Despite the poor
quarterly results, we have faith in the company's strong
fundamentals which include its broad geographic footprint, product
diversity and strong land position. We, therefore, have a Neutral
recommendation on the stock
D.R. Horton Inc., based in Texas, is one of the leading national
homebuilders, primarily engaged in the construction and sale of
single-family houses both in the entry-level and move-up markets.
Homes vary in sizes from 1,000 to 4,000 square feet, with prices
ranging from $100,000 to more than $1,000,000. In fiscal 2013, the
company closed 24,155 homes at an average sales price (ASP) of
D.R. Horton operates through two segments: Homebuilding and
Financial Services. The Homebuilding segment comprises six
reporting regions and derives revenues primarily from the sale of
completed homes built on either its self-constructed or acquired
lands. In addition to single-family detached homes, the segment
builds attached homes, such as town homes, duplexes, triplexes and
condominiums. The segment also derives revenues by selling lands
and lots. The segment recorded revenues of $6.3 billion in fiscal
2013, accounting for 97% of the company's revenues.
The Financial Services segment, through the mortgage subsidiary,
DHI Mortgage, derives its income from originating and selling
mortgages and collecting fees for title insurance and closing
D.R. Horton's operations are spread over 79 metropolitan markets
in 27 states in the East, Midwest, Southeast, South Central,
Southwest and West regions of the U.S. D.R. Horton's houses are
sold under the brand names D.R. Horton - America's Builder, Emerald
Homes, Regent Homes and Breland Homes. In early fiscal 2014, the
company introduced a new brand, Express Homes, in the $120,000
$150,000 range, targeted at entry level buyers, who focus on
The company acquired the homebuilding operations of Breland
Homes in Huntsville, AL in Aug 2012, Regent Homes in Oct 2013, an
entry-level builder in the Carolinas, and Crown Communities in May
2014, Atlanta's largest builder.
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