Home Sales and DR Horton Earnings Are Sending the Same Message About the Housing Market

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Home Sales and DR Horton Earnings Are Sending the Same Message About the Housing Market
Daniel Acker/Bloomberg

Earnings from D.R. Horton and existing home sales data were released Thursday—and they’re both sending the same message about the housing market: Things are fine, even if the market looks a little disappointed.

Housing giant Horton (ticker: DHI) reported better-than-expected fiscal third-quarter numbers. While the results and company outlook were positive, investors reacted with caution.

The company posted per-share earnings of $3.06 on $7.3 billion in sales. Wall Street was looking for $2.80 in per-share earnings on $7.2 billion in sales. It’s the company’s 10th consecutive quarterly earnings beat.

“The D.R. Horton team delivered outstanding results in the third fiscal quarter of 2021, highlighted by EPS increasing 78%,” board Chairman Donald Horton said in a statement. “These results reflect our experienced teams and production capabilities, industry-leading market share, broad geographic footprint and diverse product offerings across multiple brands.”

Shares, however, were down about 2.2%, to $89.53, in afternoon trading.

Coming into Thursday, Horton shares were up about 33% year to date, better than the comparable 16% and 14% respective gains of the S&P 500 and Dow Jones Industrial Average.

The company’s strong first-half results were driven by an improving economy. Housing starts in June, for instance, rose about 6% compared with May and almost 30% year over year. The June starts figure also exceeded economist projections.

The company sounded upbeat about coming months, too.

“Housing market conditions remain very robust, with home buyer demand exceeding our current capacity to deliver homes across all of our markets,” the chairman said. “As our top priority is to consistently fulfill our commitments to our home buyers, we have slowed our home sales pace to more closely align to our current production levels, while building out the infrastructure needed to support a higher level of home starts.”

The slowing home sale pace might be one reason investors are reacting cautiously, though are probably not something to be worried about. June existing-home sales, reported Thursday morning, grew 1.4% compared with May and 23% compared with June 2020, though the annualized selling rate of 5.86 million homes missed expectations by a hair. The minor miss might be one reason investors aren’t reacting more enthusiastically.

But there doesn’t appear to be any fundamental slowdown in the housing market. D.R. Horton also reported that it had a current-home inventory of about 47,000, up 55% from a year ago.

“The demand for homes has far exceeded D.R. Horton’s ability to produce homes,” explained Stephen Stanley, chief economist at Amherst Pierpont. “So, the company slowed its sales pace.”

With that inventory, the company now expects to generate about $27.9 billion in sales for its full fiscal year, an increase of about $700 million from guidance given in April. With one quarter left in the company’s fiscal year, the guidance implies more than $8 billion in fourth-quarter sales, better than the Street’s current projection of $7.7 billion.

The stock weakness can probably be best described as a bull-market indicator. When things are good, the investor playbook advises to “sell the news and buy the dips.”

Write to Al Root at [email protected]

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