The operator introduces the conference call for D.R. Horton's second quarter 2024 earnings. Jessica Hansen, Senior Vice President of Communications, discusses forward-looking statements and the company's financial results. CEO Paul Romanowski is also joined by other executives on the call.

The D.R. Horton team had a strong second quarter with earnings of $3.52 per diluted share and a 23% increase in pre-tax income. Despite inflation and high mortgage rates, net sales orders increased and the company remains well-positioned with 45,000 homes in inventory. Second quarter home sales revenues also increased by 14%. Net sales orders and order value also saw a significant increase compared to the prior year quarter.

In the second quarter, the company saw a 4% increase in active selling communities and a 15% increase year-over-year. The average price of net sales orders also increased, but to address affordability for homebuyers, incentives such as mortgage rate buydowns have been used. Gross profit margin on home sales revenues increased, but the overall margin for the full year will depend on market conditions. Homebuilding SG&A expenses also increased, but the company is focused on controlling them while supporting growth.

In the March quarter, Paul Romanowski reports that the company started 24,900 homes and ended with 45,000 homes in inventory, a 3% increase from the previous year. Mike Murray discusses the company's focus on relationships with land developers to maximize returns and their capital efficient lot portfolio. The company also invested $2.4 billion in lots, land, and development in the second quarter. Paul then reports that the rental operations generated $33 million in pre-tax income and $371 million in revenues from the sale of single-family and multi-family rental units. The company's rental property inventory at the end of the quarter was $3.1 billion.

In the fifth paragraph, the company states that they will not provide separate annual guidance for their rental segment due to uncertainty in the market. They also provide an update on their majority-owned residential lot development company, Forestar, which reported revenues of $334 million in the second quarter. Forestar's strong balance sheet and relationship with D.R. Horton position them well to capitalize on the shortage of finished lots in the homebuilding industry. In addition, the company's financial services segment earned $78 million in pre-tax income in the second quarter, with a strong focus on FHA and VA loans and first-time homebuyers.

The company's balanced capital approach focuses on consistent returns, growth, and cash flow. They maintain a strong balance sheet and significant liquidity, with no senior note maturities in fiscal 2024. Their stockholders' equity and book value per share have increased, and their return on equity and return on assets are strong. They have paid dividends and repurchased stock. The company expects to generate high revenues and close a significant number of homes in the third quarter, with a projected home sales gross margin of 23-23.5% and homebuilding SG&A as a percentage of revenues at approximately 7%.

The company expects to see a profit margin of 30-35% in the third quarter and an income tax rate of 24%. They anticipate generating revenues of $36.7 to $37.7 billion and closing 89,000 to 91,000 homes in fiscal 2024. They also plan to purchase $1.6 billion of their own stock and pay a dividend of $400 million. The company will prioritize growing operations, paying dividends, and repurchasing shares while maintaining strong liquidity and leverage. The company attributes their success to their experienced teams, market share, geographic footprint, and product offerings. They will continue to invest capital and return value to shareholders.

During a conference call, an operator opens the floor for questions and the first question is from Carl Reichardt from BTIG. He asks about the company's performance in Florida, given the increase in existing home inventory and higher insurance costs. The company's representative, Paul Romanowski, responds that Florida is still a strong market for them, with stable insurance rates for new construction homes in their communities. He also mentions good in migration and job growth in the state. Reichardt then asks about the company's multi-family and single-family rental business and whether it is benefiting their overall homebuilding operations. Romanowski explains that the company's scale in these markets is providing lower costs and potentially better margins for their homebuilding operations.

The company is expanding into the rental business because they are better at buying and using land, and they have more influence over costs due to their size. They will continue to offer incentives to meet market demand, but will adjust them slightly in response to changes in interest rates. They expect incentives to remain high due to the current instability in interest rates.

During a conference call, John Lovallo asks about the company's higher-than-expected deliveries in the quarter and its increased outlook for the year. Jessica Hansen explains that the company had a large number of completed spec homes, leading to a higher percentage of sales and closings within the quarter. This may have pulled forward some demand, but the company is confident in its ability to meet its guidance for the year. She also mentions that the company's inventory turns are back to normal levels. Another analyst, Stephen Kim, asks about the company's cash flow guidance.

The company is expecting $3 billion in cash flow from homebuilding, but there will be some offset from the rental segment and Forestar. The company expects the gap between homebuilding cash flow and consolidated cash flow to narrow in future years as the growth of the rental platform moderates. The rental platform is expected to continue growing in the short term, but will likely start to moderate in late 2025. Overall, the company expects consolidated cash flow to increase consistently in the coming years.

Jessica Hansen, from the company, talked about the uses of cash and the potential for growth and market share. The company's community count has been up 4% month-to-month and 15% year-over-year, which is better than other builders. They expect the growth to moderate in the next quarter or so, but they will continue to drive growth through community count rather than relying on each community's absorption. They anticipate a mid to high single-digit increase in community count in the future. The next question was about start pace going forward in a mid to high sevens mortgage rate environment.

Paul Romanowski and Jessica Hansen discuss the potential for dialing back production in response to changes in interest rates and the current state of the market. They state that they will continue to manage starts at a community level and that it would take a significant disruption for them to have a broad-based pullback in starts. They also mention that they have not seen any signs of stress in their mortgage applications, with a solid level of qualified buyers and an average FICO score of 725.

The company has seen consistent demand from buyers despite low inventory and fluctuating interest rates. Sales were strong at the end of the first fiscal quarter and into January, but there was some adjustment in February and March due to volatility in rates.

The speaker discusses the stability of sales over the past six weeks and the increase in their guidance for the year. They mention the impact of higher rates on their gross margins and how they will adjust to changes in the rate environment. There is some uncertainty about the impact on their fourth quarter, but they are pleased with their current gross margin results.

The company saw an increase in buyers using mortgage rate buy-downs, but still had a slight increase in gross margin. The company is uncertain about the rest of the year due to changes in interest rates and costs, but they are managing pace and margin to maintain desired returns. They will adjust incentives if necessary to keep pace with market conditions.

Jessica Hansen and Eric Bosshard discuss the company's gross margin and the effectiveness of incentives and buydowns in the current market. The gross margin improved slightly due to a modest pickup in incentives and a decrease in warranty and litigation costs. The company is not currently making significant changes to their incentive offerings in response to fluctuating interest rates.

The speaker, Sam Reid, thanks the company for their progress in getting back to their historical levels on cycle times. He asks if there is an opportunity to bring cycle times even lower due to the company's focus on building a more efficient house. The company responds that they are always striving for improvement and will continue to focus on reducing cycle times, but they are not expecting significant reductions from their current level. Sam also asks about the increase in order average selling price (ASP) in Q2 and the company explains that it was likely due to a reduction in incentives and geographic or mix dynamics.

In the paragraph, Jessica Hansen discusses the company's price points and mentions that the South Central and Southeast markets have had a lower percentage of sales. Sam Reid asks a question and then Alan Ratner asks about the resale market and its impact on the company. Paul Romanowski responds, stating that the limited inventory and interest rate incentives have not had a significant impact on sales. Ratner also asks about the NAR settlement with brokers, to which Romanowski responds that they view brokers as an important tool for bringing buyers to their communities.

The speaker, Paul Romanowski, responds to a question about how the recent settlement might impact the company's relationships with brokers and the economics of the business. He states that they will continue to work closely with brokers and expects some restructuring in terms of commissions and the number of active realtors. He also mentions the importance of their digital presence and staying ahead of the curve in reaching customers. The next question is about lot and cost inflation, to which the speaker, Bill Wheat, responds that they expect moderate increases in the low single-digit percentage range. The discussion then turns to the company's land-light model and the number of lots controlled, with the speaker stating that they will continue to focus on this model and that there is still room for growth. He also mentions the importance of owning a certain number of years of land or lots.

Bill Wheat discusses the company's efforts to be more efficient and capital-efficient in their lot portfolio. He mentions that 77% of their position is controlled and 62% of their deliveries were on lots developed by third-parties. They are continuing to expand relationships and seek opportunities to buy more lots from third-parties. Wheat does not want to put a limit on this, but acknowledges that incremental success takes more work. The next question is about changes in investor appetite for single-family rentals and multi-family properties. Michael Murray responds that there has been a slight increase in interest from investors, but they are still being cautious due to interest rates. There is also a growing desire for large-scale deals in this space.

During a conference call, a question was asked about the flat revenue for the rental side in the upcoming quarter. The response was that it was due to various factors such as community size and timing of closings. The company is being selective in their process and will sell whole communities at a time. There was also a discussion about homebuilding margins and how last fall, there was a negative mark-to-market due to rate volatility. However, this was not a one-time occurrence and the company does not expect a continued sequential benefit in the upcoming quarter.

The speaker discusses the unusual rate move that occurred in the previous quarter and its minimal impact on gross margin. They mention seeing success in lowering material costs, specifically lumber, which has started to increase since December but is still less than half of its peak in March. They also mention ongoing efforts to be efficient in other categories.

The company is constantly trying to balance investments and growth in order to maintain stable margins. They have seen some moderation in increases and have guided their SG&A to be about 7% for the third quarter. The low SG&A is due to investments in people and infrastructure to support growth. Margin stability was higher due to 52% of closings and intra-quarter orders.

During the conference call, Jessica Hansen and Paul Romanowski discussed the margin spread between homes coming out of backlog and those sold intra-quarter. They also addressed the impact of rising inventory and insurance costs on their markets, specifically in Florida and Central Texas. Romanowski noted that while there has been an increase in inventory in Central Texas, it has not affected their ability to sell homes in the affordable price range where they primarily compete.

The company is a spec builder and competes with both the new-home and resale markets. They feel confident in their product and have incentives, warranties, and closing cost packages to compete with resale homes. The company expects flat to slightly up gross margins for the fiscal third quarter, with low single-digit percentage increases in materials and labor costs and 3-4% increase in lot costs. Land prices have settled out recently, but the long-term trend is still up.

The speaker discusses the shortage of lot availability in the industry and how it will continue to be a constraint, resulting in no expected decrease in land prices. They also mention their use of forward commitments for rate buydowns, which they adjust based on market demand. They do not anticipate any decrease in land development costs in the near future.

The speaker discusses the demand for labor and materials in the construction industry, as well as the stability of rental margins in the company's future. They also mention that the rental guidance for the upcoming quarter is based on projects with existing financing.

The speaker is discussing the company's strategy for increasing market share through community expansion. They clarify that the increase in sales during COVID was not intentional, but rather a result of having more available lots. They also mention that the company plans to continue expanding its community count in the future, but it is difficult to predict the exact growth rate.

Paul Romanowski thanks Tom and everyone on the call for their time and looks forward to sharing third quarter results in July. He congratulates D.R. Horton on a solid second quarter and expresses pride in representing them. The operator then concludes the call.

This summary was generated with AI and may contain some inaccuracies.