Results from D.R. Horton (NYSE:DHI) from the last quarter was a mixed bag, some of which still lack clarity to make decisions upon.
Ticonderoga says, "DHI’s results showed some items we liked, some we didn’t, and some we need some clarification on before we judge. Net, we like the Orders trends, don’t like the cost trends as much, like the cash dynamics and like the inventory trends...Revenues were a touch better than expected at $790M, down 30% versus our $769M estimate. Backlog conversion finally dropped down to more sustainable levels at 88% versus our 89% forecast.
"Operating Margin was negative 2.2%, which we believe should be more like breakeven with this volume level excluding any impact from extraordinary spec sales. The Gross Margin was 15.6% versus our 16.8% forecast. This result was a drop of 140 bps sequentially. We need some clarity here, as we do not yet know what the primary driver was. If the margin suffered because DHI cleared out 400 specs, we will take it. If it’s meaningfully driven by incentives, we are disappointed with the level. SG&A was 15.5% versus our 12.2% forecast. Bluntly, we made a big gaffe with our estimate. Last quarter, SG&A was higher, on higher revenues, than on our forecast for this quarter. We have no excuse for our forecast. However, DHI’s SG&A as a percentage of sales was still too high, as it likely should have been 100 bps or more lower, given the revenue stream."
Ticonderoga maintains 'Buy' rating on D.R. Horton (DHI), which closed Wednesday at $12.81, down $0.43, or 3.25 percent. Ticonderoga has a price target of $13 on D.R. Horton.
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