D.R. Horton(DHI)2024-10-29 15:51Financial Data and Key Metrics - Consolidated pre-tax income for Q4 2024 was 10 billion, with a pre-tax profit margin of 17.1% [6] - Earnings per diluted share for Q4 were 14.34 [6] - Full-year consolidated pre-tax income was 36.8 billion, maintaining a pre-tax profit margin of 17.1% [6] - Homebuilding pre-tax return on inventory for the year was 27.8%, return on equity was 19.9%, and return on assets was 13.9% [7] - Consolidated cash flow from operations for 2024 was 700 million or 44% from the prior year [7] Business Line Data and Key Metrics - Home sales revenues for Q4 were 377,600, down 1% sequentially and year-over-year [12] - Net sales orders in Q4 increased slightly to 19,035 homes, but order value decreased 2% to 100 million of pre-tax income in Q4, with 551 million for Q4 on 5,374 lots sold, with pre-tax income of 375,400, down 1% sequentially and 2% year-over-year [12] - The cancellation rate for Q4 was 21%, up from 18% sequentially but unchanged from the prior year [12] - The company's lot position at the end of Q4 consisted of approximately 633,000 lots, with 24% owned and 76% controlled through purchase contracts [16] Company Strategy and Industry Competition - The company is focused on enhancing capital efficiency to produce consistent, sustainable returns and cash flows, with a focus on returning capital to shareholders through share repurchases and dividends [10] - The company is leveraging its relationships with land developers to maximize returns, with 64% of homes closed in Q4 built on lots developed by third parties or 4 Star [16] - The company is addressing affordability challenges by using incentives such as mortgage rate buydowns and focusing on smaller floor plans [9] - The company expects its homebuilding volume and profit margins for fiscal 2025 to depend on the strength of the upcoming spring selling season [10] Management Commentary on Operating Environment and Future Outlook - Management noted that affordability challenges and competitive market conditions persist, with potential homebuyers expecting lower mortgage rates in 2025 [8] - The company anticipates higher incentive levels and lower home sales gross margins in Q1 2025, dependent on demand during the spring selling season and changes in mortgage interest rates [14] - Management expects consolidated revenues for fiscal 2025 to be in the range of 37.5 billion, with homes closed by homebuilding operations expected to be between 90,000 and 92,000 [26] - The company plans to repurchase approximately 500 million [27] Other Important Information - The company's rental property inventory at the end of Q4 was 800 million in single-family rental properties and 76 million of pre-tax income in Q4 on $222 million of revenues, with a pre-tax profit margin of 34.2% [21] - The company's leverage at the end of Q4 was 18.9%, with leverage net of cash at 5.2% [25] Q&A Session Summary Question: Revenue guidance and rental revenue assumptions [31] - Rental revenues are expected to be relatively flat year-over-year, with heavier weighting in the back half of the year [32] - Average selling prices (ASP) are assumed to remain flat with recent trends, subject to market conditions and incentive levels [32] Question: Market conditions and buyer behavior [33] - Buyers are currently on the sidelines due to rate volatility and election uncertainty, with affordability being a significant challenge [34] - Traffic remains consistent but below expectations, with sales in line with normal seasonality [34] Question: Delivery guidance and inventory levels [38] - The company expects a ramp-up in starts during the spring, supported by improved cycle times and a strong lot position [39] - Starts are expected to pick up as the company moves into the spring selling season [40] Question: Building smaller floor plans and affordability [41] - The company is focusing on smaller floor plans to address affordability, with attached products like townhomes making up 15% of closings in Q4 [42] - Smaller plans are more efficient and help position the company for the spring market [43] Question: Inventory levels and market supply [45] - The company sees limited supply of new and existing homes, with no significant geographic concentration of unsold completed inventory [45] - The company expects completed inventory to trend down over the next few quarters [61] Question: Gross margin outlook and incentives [46] - The step-down in Q1 gross margin is primarily due to higher incentives, with costs increasing due to rate volatility [46] - Over 80% of buyers using the company's mortgage company had some form of rate buydown in Q4 [47] Question: Impact of hurricanes and NAR settlement [51] - The company did not experience significant impacts from hurricanes, with communities performing well due to current building codes [51] - The NAR settlement has not significantly impacted traffic or broker commissions, with realtors adjusting to the new requirements [53] Question: Employee and community count growth [55] - The company expects community count growth to moderate to mid-single digits in fiscal 2025, following high single to low double-digit growth in fiscal 2024 [56] Question: Spec strategy and build-to-order market [71] - The company does not plan to shift its strategy significantly, with local operators making decisions on presale focus based on market conditions [72] Question: Incentive spending and affordability [74] - The company expects to maintain elevated incentives to address affordability, with costs increasing due to rate volatility [74] - The company is continually evaluating product selection and neighborhood location to improve affordability [77] Question: Cancellation rates and buyer profile [81] - The cancellation rate in Q4 was in line with historical trends, with affordability remaining a key issue for buyers [81] - The company's rate promotions ranged from 4.5% to 5.5% in Q4, with an average backlog rate of 5.2% [82] Question: Stick and brick costs and election impact [85] - Stick and brick costs are expected to remain relatively flat in fiscal 2025, with lumber prices stabilizing [85] - The company expects the election to impact buyer sentiment, with stability post-election likely to improve demand [86] Question: Supply constraints and gross margins [87] - The company believes that limited resale inventory is contributing to pent-up demand, with new homes being competitive against the resale market [88] - The company expects gross margins to remain structurally higher over the long term due to scale advantages and lower cost of capital [91] Question: Land inflation and net price levels [94] - Land costs are expected to increase at a mid-single-digit percentage in fiscal 2025, with stick and brick costs remaining flat [94] - The company expects to need only a small amount of net price increase to hold margins [95] Question: Lumber prices and rental demand [98] - Lumber prices have increased recently, but the company expects stick and brick costs to remain relatively flat in fiscal 2025 [98] - The company sees solid demand in the rental market, with apartment starts declining over the past 12 months [100] Question: Rate levels to spur demand [103] - Stability in mortgage rates is more important than any specific rate level to spur buyer demand [103] - The company's current rate offerings range from mid-4% to mid-5%, with an average backlog rate of just over 5% [105]