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D.R. Horton Updated Its Guidance for 2016

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D.R. Horton’s conference call

D.R. Horton (DHI) sounded relatively optimistic on its conference call. It was clearly happy with the most recent quarter despite the stock price reaction. It gave its guidance for 2016.

Express Homes is the company’s entry-level brand. It’s in 48 markets in 15 states, primarily in Texas, Florida, and the Carolinas. D.R. Horton expects to have communities in the majority of its markets by the end of the year. In the fourth quarter, Express Homes accounted for 25% of homes sold, 22% of homes closed, and 15% of the revenue. This is a big increase from the fourth quarter.

The entry-level area is one place where there isn’t much competition. D.R. Horton’s biggest competitors in this market are companies like PulteGroup (PHM). These companies continue to open markets as fast as they can.

Emerald Homes, D.R. Horton’s luxury brand, is now in 44 markets in 17 states. However, it looks like D.R. Horton exited some markets in the first quarter. Emerald accounted for 8% of the revenue in 1Q16. Its biggest competitor in this segment is Toll Brothers (TOL).

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Guidance for 2016

On the conference call, D.R. Horton updated its guidance for 2016. The company expects closings to be 39,500–41,500 for the full year. The revenue is expected to be $12 billion–$12.5 billion. These estimates didn’t change from the fourth quarter.

Wall Street is forecasting revenue of $12.2 billion. This is slightly below the midpoint of D.R. Horton’s guidance. The gross margins are expected to remain unchanged in the range of “high 19s to 20%” for the full year. The SG&A (selling, general, and administrative) expenses are expected to be 10.3%–10.6%. This is an increase of about a percentage point from their guidance at the end of the fourth quarter. The pretax operating margins are expected to be 10.5%–11%.

D.R. Horton’s (DHI) stock sold off despite the good numbers. Its guidance certainly indicates that good things are ahead for builders like Lennar (LEN). Individuals who want to invest in the homebuilding sector as a whole can consider the SPDR S&P Homebuilders ETF (XHB).

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