DR Horton 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Largest homebuilder

“D.R Horton has been the leader in the U.S homebuilding industry for 12 consecutive years. Our market share position today is the largest in our history, with 40% more homes closed than any other builder in the most recently reported 12-month period.”

Expect strong Fiscal 4Q

“With our 11,365 homes in backlog and the year-over-year improvement, we have seen in our sales during the first part of July, we expect strong home closings, revenues and profits in our fourth fiscal quarter ending September.”

Sold 8551k homes

“The value of our net sales orders in the third quarter increased 32% from the year-ago quarter to $2.4 billion. Homes sold increased 25% to 8,551 homes on 11% increase in active selling communities. Our average sales price increased 5% to $281,300, the cancellation for the third – cancellation rate for the third quarter was 24%”

Overall demand is stable

“we saw a significant increase in demand in 2013. And we saw a significant price appreciation in 2013. And so the levels of demand a year ago had increased dramatically. We all know that has moderated some since then and as we assess this spring, we would say on an overall basis the demand is relatively stable with where it was last year.”

Normal margins are around 20%

“the normal gross margins on this industry, a range between 18% to 22%, we believe a normalized gross margin for ourselves, or somewhere right at the 20% level”

8 or 9 year supply of land

” we have a total of 178,000 – 175,000 total lots and that’s about a 4 point – eight or nine year supply based upon on our trailing 12 month sales. So, we feel like that, we are in a very, very strong position that we are not out there in marketplace today, paying higher price for land, that we’ve got a great land inventory as we said quarter-after-quarter, with that very, very low cost basis in it.’

Costs are definitely increasing and prices are moderating

“we believe that pricing has moderated over the last probably nine months to 12 months. Costs are definitely increasing as our subcontractors and our vendors continue to try to raise their prices given where they had to take their prices so low during the downturn. So, we’re finding increasing prices with moderating increases in sales prices and we believe that the norm as Bill said earlier, we are going to gravitate back to a more normal level [of gross margin]”

Not at the peak of the cycle

“we don’t believe we are at a peak of cycle at all.”

Labor costs are driving cost increases

“I’d say on the labor side and our land still continues to be a benefit because we were early movers and in terms of our stick and brick costs we are seeing some pressure on the material side. But more so on the labor side its specifically in those local markets where we’ve seen pretty good growth in volumes.”