D.R. Horton Tumbles Most Since 2015

(Bloomberg) -- D.R. Horton Inc. fell the most in more than three years after executives at the builder said the market for homes is getting “choppy” and that the pace of order growth may slow next quarter.

• The company reported results for its fiscal fourth quarter before the market opened, including homebuilding revenue that missed analysts’ estimates. Orders rose 11 percent. A year ago, the increase was 18 percent.

Key Insights

• Rising home prices, combined with the jump in interest rates over the past year, are weighing on demand in the U.S., especially for more expensive properties. On a call with analysts, Chief Executive Officer David Auld said the market has been “choppy” in the past four or five weeks. A “little momentum is slipping from the market,” he said.
• Higher land, labor and materials costs are cutting into builder profit margins, limiting their ability to raise prices. D.R. Horton’s gross margin of 21.6 percent for the fiscal fourth quarter was down from 21.9 percent in the previous three months as average home construction costs increased more than average selling prices.
• D.R. Horton’s focus on lower-end homes positions the company better than competitors in a weakening market. Demand for starter homes remains strong because supplies are tightest in that category. Even though young buyers are more sensitive to higher mortgage rates, the sheer size of the millennial generation will continue to fuel sales growth.

Market Reaction

• D.R. Horton shares fell as much as 10 percent, the biggest intraday decline since August 2015. They were trading at $35.54, down 5.5 percent, at 12:03 p.m. New York time. It was the worst performance in an S&P index of U.S. homebuilders, which fell 1.9 percent.

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• For its fiscal first quarter, D.R. Horton forecast deliveries of 11,000 to 11,500 homes. Jade Rahmani, an analyst with Keefe, Bruyette & Woods Inc., said he was expecting 11,867.
• Company executives said they didn’t give full 2019 guidance because of uncertainty about the strength of the upcoming spring selling season.
• Homebuilding revenue of $4.4 billion missed the lowest estimate of $4.49 billion.
• While orders were up elsewhere, they declined in the West and the Southwest.
• Read more about D.R. Horton’s results here.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, Christine Maurus, Steven Crabill

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