The paragraph is from a conference call for D.R. Horton, the largest homebuilder in the U.S., discussing their fourth-quarter and fiscal year 2024 financial results. The call, hosted by Jessica Hansen, Senior VP of Communications, includes forward-looking statements and advises caution as actual outcomes might differ. Information about potential performance changes is available in the company's SEC filings. The company's earnings release is available on their website, and they plan to file a 10-K in three weeks. Updated investor presentations will be posted online after the call. Paul Romanowski, the President and CEO, is introduced to take over the discussion.

In the call, executives from D.R. Horton, including Mike Murray and Bill Wheat, highlighted strong financial performance for the year. The company reported $1.7 billion in consolidated pre-tax income on $10 billion in revenue in the fourth quarter, with earnings per diluted share at $3.92. For the full year, they achieved $6.3 billion in pre-tax income on $36.8 billion in revenue. Return metrics were robust, and the firm's return on assets ranked in the top 25% of S&P 500 companies. Cash flow from operations in 2024 was $2.2 billion, all of which was returned to shareholders through repurchases and dividends, marking a 44% increase in share distributions. Despite market challenges, net sales orders rose slightly and sales pace matched seasonal trends, though below expectations. The company noted that many potential homebuyers are delaying purchases due to mortgage rate volatility and election-related uncertainty.

The company is focusing on demand and affordability by using incentives like mortgage rate buydowns and offering smaller floor plans, which resulted in 46% of fourth-quarter closings being completed in the same quarter. As they approach a typically slower fall season, local operators are balancing sales pace, pricing, and incentives to optimize returns before spring. The company's homebuilding volume and profit margins for fiscal 2025 will largely depend on the spring selling season's strength. Despite limited supply in the housing market, the company is well-positioned for fiscal 2025 with a focus on affordable homes and improved construction cycle times. They aim to enhance capital efficiency to provide consistent returns and increase shareholder value through share repurchases and dividends. Earnings for Q4 of fiscal 2024 decreased by 12%, but full-year earnings increased by 4%, with net income down 15% for the quarter but slightly up for the year.

In the fourth quarter, home sales revenues were $8.9 billion from 23,647 homes closed, slightly higher than the previous year's $8.8 billion from 22,928 homes. The average closing price decreased by 1% to $377,600. Net sales orders grew to 19,035 homes, although order value dropped 2% to $7.1 billion. The cancellation rate rose to 21%, with active selling communities increasing by 10% compared to the previous year. The average price of net sales orders fell by 1% sequentially and 2% year over year. Gross profit margin on home sales revenues was 23.6%, down 40 basis points due to higher incentive costs. Revenue per square foot decreased by roughly 1.5%, while stick and brick costs fell 1%, and lot costs rose 1.5%. Anticipating further incentives, the home sales gross margin is expected to decline in the first quarter of the next fiscal year.

In the fourth quarter, the company's home building SG&A expenses increased by 17%, rising to 7.6% of revenues due to platform expansion, including a 10% increase in employee and community counts and operations in more markets. They started 18,400 homes, with year-end inventory down 11% to 37,400 homes, of which 25,700 were unsold. Improved construction cycle times allowed faster inventory turnover. At the end of September, their lot position included 633,000 lots, with 24% owned and 76% under purchase contracts. Relationships with land developers helped them close 64% of homes on lots developed by others, up from the previous year.

The paragraph highlights the company's capital-efficient and flexible lot portfolio, emphasizing its strong competitive position. In the fourth quarter, home building investments in lots, land, and development reached $2.2 billion, with significant allocations for finished lots, land development, and acquisition. For the year, investments totaled $9.5 billion, a 19% increase from the previous fiscal year. The rental operations generated substantial pre-tax income and revenue from the sale of both single-family and multi-family rental units, supporting a merchant-build model that enhances home-building synergies. The rental property inventory was valued at $2.9 billion, and it's expected to remain steady. Additionally, 4 Star, the majority-owned lot development company, reported strong revenues and pre-tax income from lot sales, with a significant lot position, of which 65% are under contract or subject to a first-offer agreement with D.R.

The paragraph discusses the financial performance and strategic operations of Horton and its partnership with 4 Star. Horton purchased $430 million worth of finished lots from 4 Star, which has strong liquidity and a low net debt to capital ratio, positioning it well to address the lot shortage in the homebuilding sector. Meanwhile, Horton's financial services division earned substantial pre-tax income, with most mortgage originations related to its home building operations. The division handled financing for 77% of buyers, with FHA and VA loans making up 60% of the volume. A significant portion of borrowers were first-time home buyers. Horton maintains a strong financial position with disciplined capital allocation, generating $2.2 billion in cash from operations during fiscal 2024 and returning it to shareholders through share repurchases and dividends.

During the quarter, the company repurchased 3.4 million shares for $561 million and, over the year, repurchased 12.5 million shares totaling $1.8 billion, decreasing its outstanding shares by 3%. Their share repurchase authorization stood at $3.6 billion as of September 30th. They also disbursed cash dividends of $98 million in the quarter, totaling $395 million for the year. As of September 30th, the company had consolidated liquidity of $7.6 billion, including $4.5 billion in cash and $3.1 billion available on credit facilities. They issued $700 million in senior notes due in 2034, with total debt at $5.9 billion by September 30th. They repaid $500 million in senior notes post-year-end, with no further maturities due in fiscal 2025. Their consolidated leverage was 18.9%, and net leverage after cash was 5.2%, aiming to maintain around 20% long-term. Stockholders' equity reached $25.3 billion, with a book value per share of $78.12, up 15% from the previous year. The return on equity was 19.9%, and return on assets was 13.9% for the year. The board increased the quarterly cash dividend by 33% to $0.40 per share. Looking forward to fiscal 2025, the company aims for consolidated revenues of $36 billion to $37.5 billion and plans to close 90,000 to 92,000 homes, forecasting a 24.5% income tax rate.

The company expects to generate more cash flow from operations in fiscal 2025 compared to 2024, using a substantial portion to enhance shareholder returns. They plan to repurchase approximately $2.4 billion of common stock and pay around $500 million in dividends this year. For the first fiscal quarter ending December 31st, they anticipate consolidated revenues between $6.8 billion and $7.3 billion, with home closures ranging from 17,500 to 18,000. They expect a home sales gross margin of 22.5% and homebuilding SG&A at 8.9% of revenues. The financial services pre-tax profit margin is projected at 20%, with an income tax rate of 24.5%. Paul Romanowski highlighted the company's experienced teams, market share, and focus on affordable products as key components of their success. They plan to maintain a disciplined approach to capital allocation for consistent shareholder returns. Lastly, he expressed gratitude to D.R. Horton’s employees and partners and looked forward to improving operations and providing home ownership opportunities in 2025. The session will now proceed to questions.

In the paragraph, Stephen Kim from Evercore ISI asks about the company's revenue guidance, specifically focusing on rental revenue and average selling price (ASP) expectations. Bill Wheat responds that the company's consolidated revenue guidance assumes relatively flat rental revenues year-over-year, with heavier weighting in the back half of the year. The ASP is also expected to remain flat based on recent trends but could be influenced by future market conditions and incentives. Stephen then inquires about the impact of market conditions on buyer behavior, noting that buyers seem hesitant, possibly due to upcoming elections or affordability issues. He asks for insights on the current interest list or traffic compared to previous periods when buyer activity slowed, like in late 2022.

The paragraph is a discussion about the current state of housing market demand and affordability, featuring a conversation between Paul Romanowski and Stephen Kim. Romanowski notes that while buyer motivation has decreased and affordability is challenged, it is not a structural demand issue but rather influenced by market noise like rate volatility and election news. Romanowski emphasizes the need to focus on affordability and doesn't expect mortgage rates to drop, planning to adapt to the market as it changes. The conversation then shifts to Matthew Bouley from Barclays asking about the company's delivery guidance for 2025 compared to their current inventory, noting that the ratio appears higher than usual.

In the discussion, Michael Murray and Jessica Hansen explain their expectations for housing starts and home sizes. They anticipate both improved cycle times and an ability to increase housing starts by 2025, with a slight increase expected in the first quarter as the market evolves into spring. Additionally, they are focusing on building smaller homes, with home sizes decreasing by 1% in the fourth quarter due to a higher proportion of attached products such as townhomes, which now comprise about 15% of their closings. This shift aims to balance affordability and building efficiency.

In the paragraph, Paul Romanowski discusses the company's strategy of focusing on smaller housing plans to improve efficiency as they enter the spring market, emphasizing the importance of affordability. Despite this shift, they remain committed to catering to move-up and freedom buyers. John Lovallo from UBS inquires about the housing inventory, noting a limited supply of new and existing homes and asks if there has been a trend of worsening supply. Romanowski responds that while overall numbers haven't grown significantly, the month's supply is expanding due to low sales. He highlights that at their competitive price points, supply remains limited across most markets. Additionally, he mentions the company's advantage in offering competitive mortgage rates and stable insurance premiums compared to the resale market.

The paragraph discusses the impact of increased incentives on the company's gross margin outlook for the first quarter, which is expected to decrease by 110 basis points to 22.5%. The increase in incentives is attributed to higher costs from interest rate buydowns, as rates have become more volatile. During the recent quarter, over 80% of buyers using the company's mortgage services opted for a rate buydown, which remains flat sequentially but has increased from 74% a year ago. The main concern is not the percentage of buyers utilizing buydowns, but the rising costs associated with these buydowns.

In the paragraph, Michael Murray discusses the minimal impact hurricanes have had on D.R. Horton communities, noting that their buildings have withstood adverse weather well due to current building codes. While hurricanes can delay power restoration and inspections, these are timing issues rather than long-term business impacts. Paul Romanowski addresses the response to the NAR settlement, indicating no significant change in traffic or broker commissions and noting that the realtor community is adjusting to new requirements. Despite a limited housing market, realtor performance remains consistent.

The paragraph involves a discussion during an earnings call, where Bill Wheat addresses growth expectations for fiscal year 2025 regarding store count and entry into new markets. He mentions that recent investments in these markets are expected to result in a moderate growth rate, decreasing from high single-digit to low double-digit increases to mid-single-digit levels, while also managing SG&A costs. Carl Reichardt thanks Bill, and the operator then introduces Sam Reid from Wells Fargo, who asks about gross margin trends. Jessica Hansen responds, indicating that September had the lowest gross margin in the quarter but expects margins to improve slightly, aligning with guidance for the fourth quarter. The conversation concludes with a mention of completed unsold inventories at 10,300 units.

The paragraph involves a discussion between Paul Romanowski, Sam Reid, Michael Rehaut, and Michael Murray regarding geographic dispersion and inventory levels in the real estate market, specifically in focus markets like Florida and Texas. Paul Romanowski mentions that there is no geographical concentration of unsold inventory and improvements in cycle times have been observed. Completed inventory levels have increased due to sales being slightly below expectations, but there are no concerns about them aging. Inventory levels are expected to trend back down over the next few quarters. Michael Rehaut inquires about regional demand and whether the guidance reflects any regional challenges. Michael Murray responds by stating that the guidance does not indicate any particular regional concerns, suggesting a stable demand across their footprint.

The paragraph discusses the competitive housing markets in Florida and Texas, where buyer activity has paused. The focus for the next year involves leveraging available lots and adjusting the pace of new starts based on spring selling conditions. Michael Rehaut queries about sales trends, noting competitors saw strong September sales, likely influenced by fluctuating mortgage rates. Michael Murray responds that sales were inconsistent throughout the quarter, with mortgage rates decreasing steadily from just under 7% to just above 6%. Buyers were optimistic about the declining rates, but unexpected Fed rate cuts in October caused rates to rise again, complicating market predictions.

The paragraph is part of a conversation during a conference call involving Alan Ratner from Zelman & Associates and representatives from a company referred to as Horton. Alan Ratner asks about the company's strategy to consolidate market share, noting that peers have set growth targets for 2025. He observes that Horton's guidance for 2025 appears to be below those targets, suggesting they may not expect significant market share growth in the near term. He inquires if this outlook is due to competitors' aggressive incentives, a different approach to pricing, or other factors. In response, Paul Romanowski expresses confidence in their current position and highlights their readiness for the upcoming spring selling season, emphasizing their strategic lot position.

The paragraph discusses the company's readiness to adapt to potential market improvements in the spring by leveraging inventory and improved cycle times. The company maintains high goals and relies on operators to assess market conditions. Alan Ratner inquires about a possible return to build-to-order strategies amidst a predominant 100% spec model, previously adopted due to supply chain constraints and market demand. Michael Murray responds, stating no major strategy shift is planned; instead, local operators can decide whether to focus on presale based on community-specific market conditions and customer segments, as supply chain issues have eased and building efficiency has improved.

The paragraph features a discussion between Eric Bosshard from Cleveland Research Company and a couple of executives about strategies to address affordability challenges in the housing market. The executives, Paul Romanowski and Bill Wheat, explain that due to rising interest rates, they need to increase incentives to make homes more affordable for first-time buyers. These incentives are necessary to ensure buyers can manage monthly payments despite volatile rates. Additionally, they are considering building smaller homes and continuing to provide these incentives to address affordability issues effectively.

The paragraph discusses strategies for increasing the affordability of homes and addresses potential solutions to boost demand. Michael Murray mentions evaluating product selection, considering neighborhood location, and working with trade partners to bring affordable homes to market. Eric Bosshard and Paul Przybylski discuss concerns about backlog and incentives. Jessica Hansen notes that the buyer profile hasn't significantly changed, but more household income is now required to qualify for a home due to affordability issues. The "can rate" has slightly increased quarter-over-quarter, consistent with trends from the previous year.

In this dialogue, several financial figures and strategies related to rate promotions and construction costs are discussed. Paul Romanowski mentions their offering rates, which are around 4.5% to 5.5%, noting that these have been maintained slightly below market rates in recent quarters. Jessica Hansen confirms their backlog is at 5.2%. The conversation shifts to stick and brick costs, with Anthony Pettinari inquiring about their impact on margins. Hansen explains that while these costs decreased slightly both sequentially and year-over-year, they are not expected to significantly impact margins moving forward. Lastly, when questioned about potential election impacts, Michael Murray humorously suggests that the industry might simply be relieved when the election is over.

In the discussion, Ken Zener from Seaport Research Partners explores the high price and affordability challenges in the housing market, considering the impact of incentives offered by builders. He questions whether slow supply and a rate-neutral environment, due to these incentives, might have accelerated demand. Paul Romanowski responds by highlighting the lack of resale homes on the market, which limits movement for buyers looking to upgrade. He notes that a significant portion of their buyers aren't first-time purchasers and emphasizes potential pent-up demand. Romanowski is not overly concerned about the potential rise in resale inventory, as it could bring more buyers to their offerings, maintaining competitiveness with the resale market.

The paragraph features a discussion among industry professionals regarding the company's strategic approach to managing gross margins, affordability, and market conditions. Ken Zener inquires about the potential for structurally higher gross margins despite affordability challenges, particularly in relation to current interest rates and incentives. Jessica Hansen responds by highlighting the company's focus on maximizing returns, acknowledging that short-term gross margin compression might be necessary to achieve long-term benefits due to business scale advantages and reduced capital costs. Bill Wheat notes that while there might be a temporary reduction in margins, they remain above historical levels. Additionally, Rafe Jadrosich from Bank of America asks about expectations for land inflation from the first quarter through 2025, though the paragraph does not provide specific details on this topic.

The paragraph features a discussion between multiple individuals regarding cost trends in lot and construction materials for a business. Jessica Hansen notes a moderation from low double-digit to high single-digit increases in lot costs, with expectations for mid-single-digit increases in 2025. In terms of maintaining margins, Bill Wheat mentions that only a small net price increase will be needed, as stick and brick costs are expected to remain flat. Susan Maklari raises concerns about rising lumber prices, but Paul Romanowski anticipates relatively stable stick and brick costs due to labor market responses and competition among trades.

The paragraph involves a discussion about the housing and rental market outlook. The conversation, featuring Susan Maklari, Jessica Hansen, and Paul Romanowski, touches on the uncertainty in lumber prices and stable expectations for stick and brick through 2025. Jessica Hansen clarifies that comments on rental investment were meant for the next few quarters, with future investments depending on market conditions. Paul Romanowski mentions solid buyer demand despite reduced apartment starts in the past year, feeling confident about their inventory and production timing. Finally, Jade Rahmani from KBW inquires about interest rate levels needed to stimulate demand, questioning whether a 100 basis point reduction, especially through the 10-year treasury, would suffice.

In the conference call, Michael Murray discussed the unpredictability of factors driving interest rates, emphasizing that stability in rates is crucial for maintaining buyer demand. He noted that a tighter trading band in the third quarter led to a stronger sales environment, while volatility in the fourth quarter negatively affected demand. Jade Rahmani inquired about the APR rates offered, which Paul Romanowski stated range from the mid-4% to mid-5%. The call concluded with Romanowski thanking participants, highlighting D.R. Horton's success as the largest U.S. builder for 23 consecutive years, and looking forward to future accomplishments.

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