(Reuters) -D.R. Horton reported third-quarter profit and revenue above estimates on Tuesday as buyer incentives sustained home sales amid high interest rates and rising costs, sending shares of the homebuilder up more than 12% in morning trading.
The sector is grappling with weakening consumer sentiment, prompting builders to offer incentives such as mortgage rate buydowns and smaller, more affordable homes to stimulate demand.
CEO Paul J. Romanowski noted continued impact on new home demand amid ongoing affordability constraints and cautious consumer sentiment.
“We expect our sales incentives to remain elevated and increase further during the fourth quarter, the extent to which will depend on the strength of demand during the remainder of summer, changes in mortgage interest rates and other market conditions,” Romanowski said.
The incentives do, however, increase costs for D.R. Horton and weigh on its margins.
While the company did sequentially maintain a home sales gross margin of 21.8% in the reported quarter, Romanowski said during an earnings call that the company expected margins to take a step down to between 21% and 21.5% in the upcoming quarter.
The homebuilder expects fourth-quarter revenues in the range of $9.1 billion to $9.6 billion, compared with analysts’ estimate of $9.68 billion, according to data compiled by LSEG.
On an adjusted basis, D.R. Horton earned $3.36 per share in the quarter ended June 30, compared with analysts’ average estimate of $2.88 a share.
The Arlington, Texas-based company’s third-quarter revenue fell 7.4% from a year ago to $9.23 billion, compared with analysts’ estimate of $8.76 billion.
It narrowed its annual consolidated revenue forecast range to between $33.7 billion and $34.2 billion from its earlier forecast of $33.3 billion to $34.8 billion.
Transaction closings from homebuilding operations for the year are expected to be between 85,000 and 85,500 homes, compared with its earlier forecast of 85,000 to 87,000 homes.
(Reporting by Aatreyee Dasgupta in Bengaluru; Editing by Pooja Desai)
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