D.R. Horton Cut Its Sales Forecast and Lennar Missed on Revenue. Home Builder Stocks Are Falling.
D.R. Horton Inc. signage stands in front of homes under construction at the Eastridge Woods development in Cottage Grove, Minnesota
Daniel Acker/Bloomberg
D.R. Horton (ticker: DHI) lowered its quarterly sales guidance and Lennar (ticker: LEN) missed sales expectations for the third quarter. Supply constraints are to blame, and home builder stocks are falling.
D.R. Horton sees its current quarter home sale closures and sales coming in lower than initially forecast. The company said in a press release that it now expects closures to be 21,500, at the midpoint of management’s guidance range, down from an initial midpoint of 23,750. Sales are now forecast at $7.8 billion, down from previous guidance of $8.15 billion.
For the full year of 2021, the company now expects sales at $27.5 billion, lowered from an initial guidance of $27.85 billion. Driving the revenue weakness, the company said, was a shortage of building supplies and labor, restricting the company’s ability to meet “strong new home demand.”
The company’s bottom line isn’t expected to be as affected as sales are, though. Pricing is benefiting from strong demand and low supply, the company said, helping boost management’s current quarter gross margin expectation to 26.65% from 26.15%. The company is, therefore, maintaining its earnings per share expectation.
Analysts had been expecting EPS of $3.44 for the quarter.
The stock fell 3% Monday, worse than the S&P 500’s 1.7% decline. Not only is management’s warning bad for the stock, but the broader market is concerned about macroeconomic implications from debt-laden Chinese real-estate developers.
Meanwhile, Lennar reported earnings for the third quarter and missed sales expectations, but beat EPS estimates. The company earned $3.27 a share, excluding mark-to-market gains on certain investments, beating estimates of adjusted earnings of $3.24 a share. Sales were $6.9 billion, below expectations for $7.1 billion. The company said it faced supply chain constraints, hampering its ability to sell as many homes as it had targeted for the quarter.
Positively, higher prices helped shore up profitability, the company said. The firm’s gross margin was 27.3%, up 4.2 percentage points year-over-year, and was the company’s highest quarterly margin ever. Also, a record 20.3% net margin was the main driver behind the EPS result, management said.
Still, management said supply chain constraints are expected to persist. It expects current quarter deliveries to be roughly 18,000, but does expect a gross margin of 28%.
The stock fell 2.2% after the earnings report, after dropping 2.9% during regular trading hours.
KB Home (ticker: KBH) will report earnings this week. Analysts are looking for sales and EPS of $1.6 billion and $1.63, respectively. The stock fell 4.1% in regular hours before gaining 0.5% in after hours trading.
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