HORTON D R INC /DE/ Q1 FY2025 earnings call

• Financial results: Consolidated pre-tax income was $1.1 billion on $7.6 billion of revenues, with a pre-tax profit margin of 14.6%. Earnings were $2.61 per diluted share. - Capital efficiency: Focused on enhancing capital efficiency, with return on assets ranking in the top 15% of S&P 500 companies. - Inventory: Started 17,900 homes in the December quarter and ended with 36,200 homes in inventory, down 15% from a year ago. - Sales orders: Net sales orders decreased slightly from the prior year, with 53% of first quarter closings sold in the same quarter. - Gross margin: First quarter gross profit margin on home sales revenue was 22.7%, expected to be lower in the second quarter due to higher incentive levels. - SG&A expenses: Homebuilding SG&A expenses increased 6% from last year, with SG&A as a percentage of revenues at 8.9%. - Share repurchases: Repurchased 6.8 million shares for $1.1 billion during the quarter, with remaining authorization at $2.5 billion. - Dividends: Paid $0.40 per share in dividends, with a quarterly dividend declared at the same level.

Home Building: For the first quarter, home sales revenues were $7.1 billion on 19,059 homes closed. The pre-tax return on inventory for the trailing 12 months ended December 31st was 26.7%. Rental Operations: Generated $12 million of pretax income on $218 million of revenues from the sale of 311 single-family rental homes and 504 multi-family rental units. The rental property inventory at December 31 was $3 billion. Forestar: Reported revenues of $250 million for the first quarter on 2,333 lots sold with pretax income of $22 million. Forestar's owned and controlled lot position at December 31 was 106,000 lots. Financial Services: Earned $49 million of pretax income in the first quarter on $182 million of revenues, resulting in a pretax profit margin of 26.7%.

• Second quarter: Expected consolidated revenues of $7.7 billion to $8.2 billion and homes closed in the range of 20,000 to 20,500. Home sales gross margin expected to be 21.5% to 22%. - Full year: Expect consolidated revenues of approximately $36 billion to $37.5 billion and homes closed in the range of 90,000 to 92,000. Plan to repurchase between $2.6 billion and $2.8 billion of common stock and continue annual dividend payments of around $500 million. - Tax rate: Forecast an income tax rate for fiscal 2025 of approximately 24%.

• Market conditions: Uncertainty in mortgage interest rates, housing inventory levels, and overall market demand. - Regulatory changes: Potential impacts from new administration policies related to housing, immigration, and tariffs. - Cost factors: Fluctuations in labor, material, and land costs which could impact margins. - Competition: Competitors' strategies and market dynamics that could affect market share and pricing.

Q: Good morning guys. Thanks for taking my question. Maybe starting off with just the gross margin outlook in the second quarter. So looks like sequentially going from 22.7% to 21.5% to 22%. Can you just help us with some of the moving pieces there. I mean, is that really the expectation of just higher incentive levels? Or is there something that changes sequentially in terms of land, labor and materials?

A: Hi, John really, it is just a matter of incentive levels and what we are seeing in the market today. We've closed 53% of the -- or 53% homes we closed this quarter were sold in the quarter. So we think representative of kind of where we are, and looking throughout the quarter, our margin on closings in December was a little lower than the prior two months. So based on the visibility we have today, what we are seeing in the market, we do expect a slight step down in margin on closings in our second quarter.

Q: Understood. And then in terms of deliveries, it looks like you guys beat by about 1,000 units versus the top end, still kind of maintain that 90,000 to 92,000 guide for the full year. How would you kind of characterize that? Was there anything pulled forward into the first quarter that you didn't expect? Or is this more just a little bit of conservatism, just not knowing what lies ahead as we move into the spring?

A: I think we are always a little concerned in the fourth calendar quarter, our first fiscal with the sales demand environment. We had the inventory and the teams did a great job of delivering that inventory to closings and putting people on home. So feel really good about the execution across the board. And we're positioned to continue to deliver homes, and we need to sell a fair number of homes this quarter that we are going to close this quarter, but we've got the inventory position to do so.

Q: Hi guys. Good morning. Thanks for the details so far. First question on the start pace. That's been trending lower here, which I think makes sense given the environment. But three quarters in a row, down year-over-year. Just curious how you are thinking about the start pace going forward. Are you thinking about just given the improving cycle times, bringing back some components of BTO back in the business? Or do you feel like just given that improving cycle time, you can more appropriately match the start of sales going forward and still hit that full year guide?

A: Yeah, Alan, I believe that just the improved cycle times that we have seen have allowed us to carry a lower number of inventory, and that's why you've seen that sequential decline in our start pace. It does allow us to sell earlier in the process because of our ability to turn these homes faster. So it does allow us to pick up a little broader scale on the buyer demographic or demand that's out there. I’d expect on a go-forward basis that you are going to see our starts to be more in-line with our sales pace. We just replenish the inventory that we have and start to build as we grow throughout the year.