D.R. Horton (DHI) Misses on Q3 Earnings on Weak Margins - Analyst Blog

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D.R. Horton Inc.'s ( DHI ) adjusted earnings of 32 cents per share in the third quarter of fiscal 2014 missed the Zacks Consensus Estimate of 49 cents by 34.7% and declined 23.8% year over year. We believe that the earnings miss was due to weak orders and soft gross margin. The company also witnessed a double-digit increase in cancellation rate.

D R Horton, Inc - Earnings Surprise | FindTheBest

Quarter Details

Homebuilding revenues of $2.10 billion climbed 27.3% year over year and surpassed the Zacks Consensus Estimate of $2.04 billion by 2.9% as the company witnessed double- digit increase in home closings. Home sales increased 28.2% year over year to $2.09 billion due to higher closings.

Land sales contributed $12.6 million to revenues, lower than $13.7 million in the prior-year quarter.

Net sales orders rose 25% year over year but declined 0.2% sequentially to 8,551 homes. The value of net orders grew 32% to $2.4 billion. Cancellation rate stood at 24%, higher than 19% in the previous quarter.

Home closings increased 19% year over year to 7,676 homes in the reported quarter. While closings rose in East, Southeast, West and South Central, it declined in the Midwest and Southwest.

The quarter-end sales order backlog rose 15% year over year to 11,365 homes. Backlog value grew 26% to $3.3 billion. Sales order backlog represents homes under contract but not yet closed at the end of a certain period. Backlog increased in Southeast, West, East, and South Central regions but declined in Southwest, and Midwest regions.

Margins Going Strong

Gross margin on home sales declined 70 basis points (bps) year over year and 180 bps sequentially to 20.7% due to the impact of the acquisition of Crown Communities and Regent Homes and higher expense for warranty and construction defect claims. Gross margins did not meet the company's expected range of 21.5-22.5%.

SG&A expenses were $221.9 million, up 32.5% from the prior-year quarter.

Homebuilding pre-tax income was $158.6 million versus $185.4 million in the prior-year quarter. Pre-tax income from financial services came in at $13.2 million, lower than $19.7 million in the prior-year quarter due to a competitive pricing environment.

Dividend Hike

D.R. Horton has declared a 67% hike in quarterly cash dividend to $0.0625 per common share, payable on Aug 18, 2014 to stockholders of record as of Aug 8, 2014.

D.R. Horton carries a Zacks Rank #1 (Strong Buy)

Investors interested in the industrial goods sector can also consider Martin Marietta Materials Inc. ( MLM ), Beazer Homes USA Inc. ( BZH ) and Toll Brothers Inc. ( TOL ). All the companies hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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