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D.R. Horton(DHI) - 2024 Q4 - Earnings Call Transcript
DHID.R. Horton(DHI)2024-10-29 15:51

Financial Data and Key Metrics - Consolidated pre-tax income for Q4 2024 was 1.7billiononrevenuesof1.7 billion on revenues of 10 billion, with a pre-tax profit margin of 17.1% [6] - Earnings per diluted share for Q4 were 3.92,andforthefullyear,itincreased43.92, and for the full year, it increased 4% to 14.34 [6] - Full-year consolidated pre-tax income was 6.3billiononrevenuesof6.3 billion on revenues of 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 2.2billion,withallcashreturnedtoshareholdersthroughrepurchasesanddividends[7]Sharedistributionsincreasedbyapproximately2.2 billion, with all cash returned to shareholders through repurchases and dividends [7] - Share distributions increased by approximately 700 million or 44% from the prior year [7] Business Line Data and Key Metrics - Home sales revenues for Q4 were 8.9billionon23,647homesclosed,withanaverageclosingpriceof8.9 billion on 23,647 homes closed, with an average closing price of 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 7.1billion[12]GrossprofitmarginonhomesalesrevenuesinQ4was23.67.1 billion [12] - Gross profit margin on home sales revenues in Q4 was 23.6%, down 40 basis points sequentially, primarily due to higher incentive costs [13] - Rental operations generated 100 million of pre-tax income in Q4, with 705millioninrevenuesfromthesaleof1,692singlefamilyrentalhomesand868multifamilyrentalunits[17]4Star,themajorityownedresidentiallotdevelopmentcompany,reportedrevenuesof705 million in revenues from the sale of 1,692 single-family rental homes and 868 multi-family rental units [17] - 4 Star, the majority-owned residential lot development company, reported revenues of 551 million for Q4 on 5,374 lots sold, with pre-tax income of 109million[19]MarketDataandKeyMetricsThecompanyoperatesin125marketsacross36states,upfrom118marketsin33statesthepreviousyear[14]TheaveragepriceofnetsalesordersinQ4was109 million [19] Market Data and Key Metrics - The company operates in 125 markets across 36 states, up from 118 markets in 33 states the previous year [14] - The average price of net sales orders in Q4 was 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 36billionto36 billion to 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 2.4billionofcommonstockinfiscal2025andpayannualdividendsofaround2.4 billion of common stock in fiscal 2025 and pay annual dividends of around 500 million [27] Other Important Information - The company's rental property inventory at the end of Q4 was 2.9billion,consistingof2.9 billion, consisting of 800 million in single-family rental properties and 2.1billioninmultifamilyrentalproperties[18]Thecompanysfinancialservicessegmentearned2.1 billion in multi-family rental properties [18] - The company's financial services segment earned 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]