DHT-HOLDINGS Earningcall Transcript Of Q2 of 2024
Bill W. Wheat -- Executive Vice President, Chief Financial Officer Our net sales orders for the third-quarter increased 1% from the prior year to just over 23,000 homes and order value was flat at $8.7 billion. Our cancellation rate for the quarter was 18%, up from 15% sequentially and flat with the prior-year quarter. Our average number of active selling communities was up 3% sequentially and up 12% year over year. The average price of net sales orders in the third quarter was $378,900, which is flat sequentially and down 1% from the prior-year quarter. To address affordability, we are still using incentives such as mortgage rate buy downs, and we have reduced the prices and sizes of our homes where necessary. Although our home sales gross margin improved sequentially this quarter, incentives are elevated and we expect them to remain near these levels assuming similar market conditions and no significant changes in mortgage rates. Jessica? Jessica L. Hansen -- Senior Vice President, Communications and People and Head of Investor Relations Our gross profit margin on home sales revenues in the third quarter was 24%, up 80 basis points sequentially from the March quarter. Our gross margin was better than expected, primarily due to lower incentive costs than in the second quarter. On a per-square-foot basis, home sales revenues were up 2% and stick and brick costs were down 1% in the quarter, while lot costs increased approximately 2.5%. For the fourth quarter, we expect our home sales gross margin to be similar to the third quarter. Further out, our home sales gross margin will continue to be dependent on the strength of new home demand, changes in mortgage rates, and other market conditions. Bill? Bill W. Wheat -- Executive Vice President, Chief Financial Officer In the third quarter, our home building SG&A expenses increased by 12% from last year, and home building SG&A expense as a percentage of revenues was 7.1%, up 40 basis points from the same quarter in the prior year. Fiscal year to date, homebuilding SG&A was 7.5% of revenues, up 30 basis points from the same period last year, due primarily to the expansion of our operations, including new markets and an increased community count. We will continue to control our SG&A, while ensuring that our platform adequately supports our business. Paul? Paul J. Romanowski -- President and Chief Executive Officer We started 21,400 homes in the June quarter and ended the quarter with 42,600 homes in inventory, down 3% from a year ago. 26,200 of our homes at June 30th were unsold. 8,800 of our total unsold homes were completed, of which 990 had been completed for more than six months. For homes we closed in the third quarter, our construction cycle times improved slightly from the second quarter, bringing us below our historical average cycle times. Our faster construction and housing terms allow us to manage our homes and inventory more efficiently. We plan to maintain a sufficient start pace and homes in inventory to meet demand while remaining focused on improving capital efficiency. Mike? Mike Murray -- Executive Vice President, Chief Operating Officer Our home building lot position at June 30th consisted of approximately 630,000 lots, of which, 24% were owned and 76% were controlled through purchase contracts. We remain focused on our relationships with land developers across the country to maximize returns. These relationships allow us to build more homes on lots developed by others. Of the homes we closed this quarter, 64% were on a lot developed by either Forestar or a third party. Our capital efficient and flexible lot portfolio is a key to our strong competitive position. Our third-quarter home building investments in lots, land and development totaled $2.5 billion. Our investments this quarter consisted of $1.4 billion for finished lots, $750 million for land development, and $340 million for land acquisition. Paul? Paul J. Romanowski -- President and Chief Executive Officer In the third quarter, our rental operations generated $64 million of pre-tax income on $414 million of revenues from the sale of 790 single-family rental homes and 610 multifamily rental units. We continue to operate a merchant-built model, in which we construct purpose-built rental communities and sell them to investors. Our rental operations provide synergies to our home-building business by enhancing our purchasing scale and providing opportunities for more efficient utilization of trade labor and land parcels. Our rental property inventory at June 30th was $3.1 billion, which consisted of $1.1 billion of single-family rental properties and $2 billion of multifamily rental properties. We expect our total rental inventory to remain around the current level for the next several quarters. Jessica? Jessica L. Hansen -- Senior Vice President, Communications and People and Head of Investor Relations Forestar, our majority-owned residential lot development company, reported revenues of $318 million for the third quarter on 3,255 lots sold with pre-tax income of $52 million. Forestar's owned and controlled lot position at June 30th was 102,100 lots. 63% of Forestar's owned lots are under contract with or subject to a write-off first offer to D.R. Horton. $270 million of the finished lots we purchased in the third quarter were from Forestar. Forestar had approximately $745 million of liquidity at quarter end with a net debt-to-capital ratio of 18.7%. Our strategic relationship with Forestar is a vital component of our returns-focused business model for our home building and rental operations. For Forestar's strong, separately capitalized balance sheet, growing operating platform, and lot supply, position them well to capitalize on the shortage of finished lots in the home building industry, and to aggregate significant market share over the next several years. Mike? Mike Murray -- Executive Vice President, Chief Operating Officer Financial services earned $91 million in pre-tax income in the third quarter on $242 million of revenues, resulting in a pre-tax profit margin of 37.7%. During the third quarter, essentially all of our mortgage company's loan originations related to homes closed by our home building operations. And our mortgage company handled the financing for 78% of our buyers. FHA and VA loans accounted for 56% of the mortgage company's volume. Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 725 and an average loan-to-value ratio of 88%. First-time home buyers represented 57% of the closings handled by a mortgage company this quarter. Bill? Bill W. Wheat -- Executive Vice President, Chief Financial Officer Our balanced capital approach focuses on being disciplined, flexible, and opportunistic to sustain an operating platform that produces consistent returns, growth, and cash flow. We have a strong balance sheet with low leverage and significant liquidity which provides us with the ability to adjust to changing market conditions. During the first nine months of the year, our consolidated cash provided by operations were $228 million, and our home-building operations provided $972 million of cash. At June 30th, we had $5.8 billion of consolidated liquidity, consisting of $3 billion of cash and $2.8 billion of available capacity on our credit facilities. Debt at the end of the quarter totaled $5.7 billion with $500 million of senior notes maturing in October, which we expect to refinance. Our consolidated leverage at June 30th was 18.8%, and we plan to maintain our leverage around or slightly below 20% over the long term. At June 30th, our stockholders' equity was $24.7 billion, and book value per share was $75.32, up 18% from a year ago. For the trailing 12 months ended June 30th, our return on equity was 21.5% and our consolidated return on assets was 14.8%. During the quarter, we paid cash dividends of $0.30 per share, totaling $99 million. And our board has declared a quarterly dividend at the same level to be paid in August. We repurchased 3 million shares of common stock for $441 million during the quarter. Our fiscal year-to-date stock repurchases through June increased by over 60% from the same period last year to $1.2 billion, which reduced our outstanding share count by 3% from a year ago. Based on our strong financial position and expectation for increased cash flows, our board recently approved a new share repurchase authorization totaling $4 billion. Jessica? Jessica L. Hansen -- Senior Vice President, Communications and People and Head of Investor Relations For the fourth quarter, we currently expect to generate consolidated revenues of $10 billion to $10.4 billion and homes closed by our home building operations to be in the range of 24,000 to 24,500 homes. We expect our home sales gross margin in the fourth quarter to be around 24%, and home-building SG&A as a percentage of revenues to be approximately 7%. We anticipate a financial services pre-tax profit margin of around 35% in the fourth quarter, and we expect our quarterly income tax rate to be approximately 24% to 24.3%. For the full year of fiscal 2024, we now expect to generate consolidated revenues of $36.8 to $37.2 billion and expect homes closed by our home-building operations to be in the range of 90,000 to 90,500 homes. We continue to expect to generate approximately $3 billion of cash flow from our home-building operations in fiscal 2024. Finally, we now plan to repurchase approximately $1.8 billion of our common stock for the full year in addition to annual dividend payments of around $400 million. We plan to provide guidance for fiscal 2025 in October when we report our fourth quarter earnings and after we have completed our annual budgeting process with our operators. We expect to be positioned to increase our market share further next year. We also expect to generate increased cash flow from operations in fiscal 2025, which we plan to utilize to increase our returns to shareholders through proportionately higher share repurchases and dividends. Paul? Paul J. Romanowski -- President and Chief Executive Officer In closing, our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint, and focus on affordable product offerings. All of these are key components of our operating platform that sustain our ability to produce consistent returns, growth, and cash flow, while continuing to aggregate market share. We have significant financial flexibility and we plan to maintain our disciplined approach to capital allocation by providing consistently high returns to our shareholders to enhance the long-term value of our company. Thank you to the entire D.R. Horton family of employees, land developers, trade partners, vendors, and real estate agents for your continued efforts and hard work. This concludes our prepared remarks. We will now host questions. Questions & Answers: |