D.R. Horton (DHI) 31 Jan 182018 Q1 Earnings call transcript

Company Profile

Participants

Jessica Hansen	VP, IR
David Auld	President and CEO
Mike Murray	EVP and COO
Bill Wheat	EVP and CFO
Carl Reichardt	BTIG
John Lovallo	Bank of America Merrill Lynch
Stephen East	Wells Fargo
Alan Ratner	Zelman & Associates
Ken Zener	KeyBanc Capital Markets
Mike Rehaut	JP Morgan
Stephen Kim	Evercore ISI
Soham Bhonsle	Susquehanna
Nishu Sood	Deutsche Bank
Michael Dahl	Barclays
Dan Oppenheim	UBS
Jade Rahmani	KBW
Buck Horne	Raymond James

Call transcript

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Operator

Good morning, and welcome to the First Quarter 2018 Earnings Conference Call of D.R. Horton, America's Builder, the largest builder in the United States. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. the Relations to for turn President, Hansen, now Investor of D.R. will call Jessica over Vice I Horton.

Jessica Hansen

Thank you, quarter Kevin, call to and good morning. our for Welcome results the first of XXXX. discuss fiscal to our

get statements defined Act forward-looking of we that Litigation Private as started, include by may Before comments call constitute XXXX. Securities the Reform today's

All based D.R. believes to any forward-looking any revise will reasonable information no is there actual D.R. Horton the such outcomes on Horton are D.R. any or Although statements. date conference assurance be does not forward-looking available to different. of obligation materially assumptions, undertake update not upon call, statements are statements Horton that on publicly based and this

our reference. homebuilding selling events and active gross your will return mix changes segment sales we detailed at week. operations in Form post contained This news report found [technical press The after website development, updated Exchange And our segments. home can combined a on information our product investor.drhorton.com, data all Horton's in consolidated of annual which reporting call, D.R. services file information difficulty] plan inventory, margin, XX-K, Commission. performance release is that to release the that under basis. side, about financials This communities, operations. the a supplementary financial material Investor Additional our of on issues information Securities for consolidated presentation changed the and other includes and on in note, be on includes filed supplementary could our on on data for have is financial with lead our reminder site, earnings Relations Please and XX-Q presentation we information as this on next morning's mortgage on in changes to in and our a we

the CEO. and call David Auld over Now I'll turn to our President

David Auld

Jessica, you, and good morning. Thank

President off by call The revenue on pre-tax to income Wheat, team and and Financial in start Vice $X.X a pleased XXXX, Mike in I and Chief President to increase million. quarter Jessica, Vice this is to XX% D.R. be Chief strong am $XXX.X Horton addition Operating Executive Murray, Officer. to in In Bill million, joined XX% our Officer; Executive to first the on consolidated increased a our

Our to margin sold pre-tax homes and our results difficulty] increased reflect diverse our across offerings profit footprint. basis the the XX%. These improves our of XX points broad XX.X% strength teams national of and product operational [technical

focus and profits, in strategic operating annual while returns. pre-tax cash Our positive is both difficulty] produce to revenue [technical generating and flows double-digit increasing our

XXX return a the and homes in XX% Mike? XX and XXX,XXX selling are owned points For year spring an inventory was season end XX.X% homebuilding improvement of growth trailing in months, ago, XXXX. with of basis we lots and well-positioned inventory the controlled our for December XX,XXX on at from further

Mike Murray

per the net first rate, share $X.XX consolidated impact this million quarter's pre-tax quarter difficulty] was enacted quarter current of income. million tax per tax in results redemption December $XX.X net law prior reduce increased asset, of to income income income apply [technical for The diluted for federal to a to current compared pre-tax Our lower rate year a the $XXX.X by and to difficulty]. to the XX% increased homebuilding compared a XX% million $XXX.X tax million, reduce due income $XXX.X to ago redemption the Net million $X.XX legislation tax $XX.X was $XXX.X to our with non-cash million offset to income one-time the for or to into Jobs Cuts per million lower diluted $XXX.X share. of our expense in compared million [technical or Act partially $X.XX was or and in quarter tax diluted charge expense share quarter which impacted $XXX.X Tax deferred quarter. year our the

rate conversion first XX%. the backlog was quarter Our for

home increased closed result, XX,XXX in year quarter quarter. sales the a revenues prior $X.X from homes our XX% billion to $X.X first billion up X,XXX As on on closed, homes

price X% from quarter down the the was quarter. Our average prior closing $XXX,XXX, for year

quarter under for brand home and homes closed our revenue. XX% of XX% This homes actual Homes of marketed Express sales accounted

Our home of and than price moved end [technical or difficulty] revenue. buyers of higher and X% sales $XXX,XXX, XX% closed greater home luxury homes

and and is revenue accounted customer in low maintenance homes orders $X.X for first Freedom communities now XX increased value of these to to positive. adult prior XX% affordable Freedom XX across of quarter homes continue billion active being Homes year to and X% Homes offered lifestyle in of and brand offering response our Our in a closed increased the sales markets home the the to first quarter sales The states XX% home homes. quarter. XX,XXX X% sales net from be

of Our number average X% the active prior increased selling from year quarter. communities

in to rate and orders value cancellation was in an year first XX% last X% to price the increased from $XXX,XXX, the and the with Our Jessica? $X.X consistent quarter sales XX% backlog quarter during average The first ago of average backlog of selling homes quarter the net with our $XXX,XXX price billion a sales increased was of on per XX,XXX home homes. year.

Jessica Hansen

points prior the improvement increase compared I interest from XX the on of quarter that apologize coming told due lower up. Our of in through was periods, and been clearly both warranty call Gross from costs. home fourth first is an sales it's quarter litigation margin revenue XXX to the And year not and to and margin we're basis that quarter. primarily breaking sequentially basis the gross points XX.X%, profit

line going So makes that see quickly better. redial the to back if it and get off in very we're to

the apologies Our inconvenience. for

Operator

[Operator Instructions].

speakers. our Now rejoining

Jessica Hansen

I'm you, going margin. Kevin. sales gross Thank with continue to home

product as well impact year, the spring fluctuations relative current of be range the fiscal full sales for we home on and selling and XX% impacted due outside of mix the Our with the first maybe our will season. conditions, of by gross Based margin in results be interest warranties, strength that the to Bill? range our gross margin costs. geographic quarterly as litigation of market and XX% to quarter expect the will

Bill Wheat

In SG&A homebuilding percentage quarter. as expense year revenues from unchanged the prior the a X.X%, first of was quarter,

SG&A acquisition. remain includes of Jessica? cost million quarter's ensuring Forestar focused controlling infrastructure $X.X the We our SG&A, our while on supports growth. This to transaction related our adequately that

Jessica Hansen

our related pre-tax income mortgage of decrease company's on due lower services in origination Borrowers $XX.X Financial compared to ratio handled from VA financing $XX.X loan and was buyers. XX%. an million, The loan quarter the year of loans primarily quarter this homes quarter. originations during XX% pressures our loans average upward in DHI first Mortgage the company the of And average XX% XXX score [ph] profit in pricing sales closed mortgage our for for mortgage market. homebuilding had in the prior home an with was volume. quarter originating XX% competitive accounted operations. of loan-to-value of million company's in by SHA and mortgage the to to the FICO

XX% homebuyers company, with mortgage year represented of quarter. Mike? our handled the by closings First-time consistent prior the

Mike Murray

season year in in unsold, more total of David? quarter and XX,XXX us completed. for were construction We in of ended putting inventory, our homes first the with XX% XXXX. homes the and to in fiscal homes stages X,XXX ago, position various of rest a a XX,XXX Compared XX,XXX with spring inventory; have selling strong we the

David Auld

Our the million quarter of land lots $XXX which $XXX homebuilding development. was in for land finished million development investment first acquisitions during for and totaled and land and million, lots, was $XXX

inventory return a months. Our on XX% consistent underwriting remain and a cash criteria initial XX our at and operational annual minimum investment expectations for pre-tax new return of communities within

operations homebuilding lots, approximately to our invest development in billion in XXXX. land and expect We $X Bill?

Bill Wheat

and XXst, or our XX% contracts. were or XXX,XXX of XX,XXX of were owned consisted our optioned and our homebuilding XX,XXX by were X,XXX lots which were optioned. XXX,XXX XX,XXX were December of homebuilding, portfolio which finished, controlled lot through XXst Forestar. At XXX,XXX owned at of total land and of were lots XX% December lots, option owned

a over number growing We owned as of the relatively few of level. the with continue option can the increased relationships and majority we option expanding increase plan while operations. our flat Forestar believe next our as land land lot development total maintaining country, lot current pipeline years, XX% we with ago have and from year XX% to the our portion to our across developers owned well our lots position We land

advantage XXX,XXX is competitive a and Our housing support our in strong current the to lot Mike? homebuilding sufficient market portfolio growth.

Mike Murray

continue we in XX% D.R. this create between with efficiency to to access returns. cash. land the On Forestar D.R. the and long-term of we land have million increase alignment outstanding D.R. about October company been positions expanding of enhance country to excited publicly residential traded and the shares with development interactions a optioned Horton's Horton our Xth, across predictive land $XXX relationships relationship for operational developers for very the our shareholders. strategy Group, advances and Forestar and Forestar lot acquired Forestar Horton and both be will over value and The of

for fully interest our reported XX% results now are consolidated with interest. D.R. XX, the segments in acquisition operating date does of period to December XXXX and subsequent as Forestar's as the the financial Horton non-controlling

of are the impact liabilities $XXX of acquisition and its goodwill. release $XX as of information inventories present low results on XXXX value million tables million of press assets were The at including And cash, Forestar's Forestar's and other basis. and segment fair adjustments our date, land of of provided presented separately. recorded accounting million the operating and as purchase XX, in December cost $XXX historical

Forestar's XX been D.R. as states. Both XX identifying December land evaluating expand to on and has acquisition Forestar sourced of Forestar platform. opportunities, across development October, Forestar primarily and Forestar has opportunities XXst. operations in in Horton six opportunities Since the currently are those XX Horton of markets by closed D.R. approximately

may projects high to to lots Horton with the agreement are two majority These approximately communities accords serves. the expected companies. the Horton yield master currently markets All sold demand of of in between be are that which in supply XX XX,XXX D.R. located D.R. finished

cash continuing to capitals also its existing and growth. work which portfolio, Forestar's projects are on provide for Forestar returns improve its will on flows legacy future Jessica? support accelerate We with to to plans

Jessica Hansen

expect adjustments purchase annual D.R. capital and access the XX,XXX not lots on intersegment due expect deliveries need. we during approximately working In in forward, Forestar development, portfolio. in and this Forestar expect capital cash next both flow fiscal to Horton's XXXX have to generated public years over from XXXX. do its We XXXX, grow deferrals. the fiscal credit and the legacy we expect approximately help to impact of fiscal growth expect million by to a a to accounting additional three to existing Also XXXX from primarily for impact we Forestar and to earnings, market to XXXX, $XXX material the bank invest obtain profit land facility acquisition funded we fiscal fund Looking Forestar's cash Forestar

We on Forestar will earnings our expect XXXX guidance call update April. in to and D.R. Horton Forestar a we our quarter reference for future on calls second

and As on allow to to to Relations a company, and Horton information, focus reports host the public not will Forestar's solely quarterly to will Forestar continue team file public but required other quarterly continue conference will call. D.R. Investor Forestar annual handle operations.

calendar XXXX historically operated has file Forestar report mid-March. the year-end annual its and by will on

XXth changing with fiscal that has Forestar it year-end align Bill? D.R. its will XXXX, in fiscal December announced from September is year. Horton's XXst which to

Bill Wheat

homebuilding At million XXst, $XXX included liquidity our facility. homebuilding of revolving million on available credit cash December capacity and unrestricted of $XXX our

basis points ratio year to leverage ago a XXX XX.X%. improved homebuilding Our from

of the XXXX no million The and quarter, months. the the outstanding the X.XX% issued of next $XXX have notes homebuilding senior used repaid billion of notes quarter X.XXX% million notes and at in and par. our balance was we note public at $X.X senior senior XX in we of end During we million maturities due $XXX $XXX

quarter, cash the $XX During activities first our operating in was used consolidated million.

selling Excluding cash construction as used in homes $XX.X spring for season. and the our we of million we increased operations, preparation Forestar, under

cash dividends stock and repurchase to of shares our shareholders of During million $XX.X paid XXX,XXX our for common the $XX quarter million. we we

a year billion XXst, stockholders share repurchase value up stock $XXX.X remaining $XX.XX, and our equity per was million. authorization ago. at $X.X XX% December Our At December was book was XX, from XXXX

S&P rating upgraded investment to minus. flat BBB recently We from pleased are D.R. also credit David? grade BBB corporate that Horton's

David Auld

balanced Our and flexible, approach opportunistic capital being disciplined. focuses on

increasing are our balance Our of we company. long-term flow flexibility, to position plan liquidity, utilize strength, the consistent improve growth and value the generation sheet earnings and cash strong to our

capital in cash excluding investing flow to and debt market shareholders our acquisitions, through priorities maintain repurchases. top return Our share and business strategic or and by homebuilding are reduce share our consolidate levels, to dividend over to growing Forestar. After Jessica? in considering to of cash tax legislation impact $X.XX $XXX now in XXXX, the million least recent from we operations generate annually expect billion XXXX of at

Jessica Hansen

homes. consolidated forward, XX%. are expect to a expect XX,XXX X.X%. billion the to anticipate XXXX range. for the will billion quarterly potential sales range close now We for to pre-tax gross We and to outside XX% and of and fiscal of our will between We we home margins of updating fluctuations We current $XX.X XXXX SG&A revenues estimate expectations Looking generate be conditions. XX,XXX still consolidated around XX.X% annual with homebuilding on this be of our XX%, $XX.X our expense margin based market between in

We expect for operating margin financial the be around our to services year XX%.

$XXX now approximately expect than generate a of and XXXX operations we our from share outstanding to XXXX. David X% this tax XX% million excluding flow We fiscal of took in are excluding deferred the fiscal least we tax asset increase forecasting And year. mentioned, Forestar cash at account one-time we less by charge as quarter expect income positive rate this to

year be impacted will strength our quarter, we necessary Our the becomes significantly full visibility year and by selling the spring as the season will clear. this spring the expectation results each and as update of to

second the approximate gross will the and to revenues. of rate second the sales to expect beginning in our quarter closed XXX%. the the we conversion we be anticipate quarter SG&A range home in number second margin homebuilding to range our of XX% We range the X.X% of will be X% XX% expect quarter For of of in homes of our XXXX, homebuilding in to XX% backlog

XXXX. repurchase flows, and generate as increase our we the increased with and to debt leverage, longer target our to flat expect down share outstanding pay cash we by dividend decrease term offset David? and keep shares the to dilution our Over count

David Auld

growth In people closing, sales, our our profits and closings and platform. a operating in strength quarter's is the of result first of

our expand builder leading annual at and industry double-digit continuing and to striving operating to flows We of while pace, remained positive the market our and on improve both share. revenue to be each leading pre-tax to focused profits markets our are in continue We growing annual generate returns. a cash

lot We most are well Emerald attractive with sheet, footprint, team We solid our and our the offering positioned brands, diversified outstanding and prepared our finished do and Freedom Express we country. XXth as remarks. our Horton we operations entire look This hard for continued work, together D.R. broad across and team balance product land across the year. forward to their growing XXXX, and our to thank anniversary importantly, D.R. focus so, Horton, the improving geographic and in concludes position celebrate

We host now will any questions.

Operator

today BTIG. Instructions] Thank you. coming from first Reichardt question with Carl [Operator proceed Our Please question. is from your

Carl Reichardt

quarter? know bit I gross controlling Don's got a homes backlog come to was But But see was impact this And any relative significant you I we from you? have ask SG&A helped which and later. the of the spec obviously what better issues to morning Good bit up, than did you getting - everybody. that phone little the any wanted did still any expected issues a markets margin mix little will but higher about out see I we system. you out margin, have have there numbers

Mike Murray

say contribution from decline was warranty core solid as component, is it We litigation quarter, backlog see see a a outlook and our primarily and interest outlook throughout stable was more last have basis did this very and Carl, a in there this stable stable. continuing was core had would a there. lower an warranty conversion margins impact margin a And business lower back well. normal interest quarters the solid, No I our which a solid the margin forward on margins really just But been forward level the quarter quarter. going our we've as level basis. core very just to and on we we elevated litigation several and as as continue interest well the steady costs look same to

Carl Reichardt

have perspective try on I much I'm markets about in David, don't in markets? like to you in interested Thanks. of penetration. consolidate where Northeast, process presence. in where to of Bill. those to you at expect markets And thought invest to the But know as we Mid-Atlantic the have Midwest then thanks terms markets your there, Okay, the growth can all you some the your continue already comment you've share potential

David Auld

kind two lot three a Carl of going markets. time company to big kind that we've our spend personal those markets are belief within years last a going or of at looking forward. be those of part And repositioning my of is those

Carl Reichardt

David. Thanks,

David Auld

markets, no those the In there are to in one and like not market. there be for Texas we is of us lot markets in number just are a one people there number reason

Carl Reichardt

Thanks.

Operator

Our Lovallo from Bank John from Lynch. next coming Merrill is of question America

now is live. line Your

John Lovallo

questions guys. Thanks Hey, this morning. for taking my

be The fiscal on to closer equity would overtime comments the debt? accordance thoughts first the the capital with guess question going one access the to markets dilute to is master to in this goal Forestar any to in XXXX. down the then kind I supply still year XX% stake for the around intention whether of be, that is And or is agreement? on

Mike Murray

Mike. is this John,

growing We any yet today, intended a decided overtime. to right what down a have we the Possibly makes in equity on sense percentage first But we're bit and now. ownership debt our the not drift foremost most platform. do focused or as of blend building between and

John Lovallo

if comfortable being Okay, that's count helpful. being about And continue are that absorption? you community the push how is then, able guys quarter comment on this if did you with up I in the case, heard to And to correctly, X%.

Jessica Hansen

The we'd slightly, down absorption slightly be continuing was year. flat story. this up community year-over-year, were throughout with we X%. expect again once we as sequentially comfortable quarter will push data X% in I be to but move believe the tick count our or relatively Obviously details our Very continue that call, about we to to down after supplementary at the to the up

Mike Murray

helping as Freedom helping really for introducing And absorption. We increase of our John, is that our other into that really us there as potential brands year. some we're we product the the have of that's diversity well, absorption see drive communities where remainder this our for

John Lovallo

guys. very Thanks much,

Operator

Thank you.

question Our questions. your Please from proceed next with East Wells Stephen from coming is Fargo.

Stephen East

guys. Thank you. morning Good

I of brought a of surprisingly you've and Just have talk Could Forestar. you you XX a about located here, And Forestar couple deals follow on they're first where about on identified on then about X. on, other questions all?

Mike Murray

portfolio Florida, Carolinas, XX now Washington. Georgia, Texas Our right it's and the deals

Stephen East

you you. then limiting into fiscal the what's And through converting I could many those and expect XXXX, those how to got as balance the to you seeing Forestar? right, you're the me, All missed going sheet as as year lots of Mike, whatever from then repeat and converting on Forestar factor that. And far move for XX in XXXX to you else use

Mike Murray

In expect out deliveries lot we around XXXX, of XX,XXX have to Forestar. coming

good the factor adequate growing really, about got future is feel a capital people into for team we've before processes. is raise, been very So XXXX and platform. feeling about think teams we We there like trajectory. path And limiting strong. capital the the The foreseeable the the we've lead to to made and have additions that's so the more far growth our and in to going growth we think

Stephen East

guess guess And lots at if on the And me to that little a factor already I bit. limiting only surprises in guess I you're XXXX, looking XX,XXX XX,XXX Okay. have I growth.

Mike Murray

annual be the XX,XXX lots. would inventory The in would the be the XX,XXX deliveries. The total

we then So of out expect but deals them delivering those be XXXX to by a several - holding year supply be XX,XXX and they'll development. years of on inventory

Stephen East

right. Got All Thank you, okay. you.

Operator

you. Thank

Zelman from Ratner is question next from Our & Associates. Alan

live. now is line Your

Alan Ratner

Good nice guys. morning, quarter. Hey,

release They're lot. this in around mentioned you this really one-time move end strong So basis items low about. on Then XX like seem to but and that XX that certainly drove upside margin, more you're warranty. and range lumpy, nature, the litigation, XXX a they little points. forever, the quarter, talked at gross they really of the it's bit the It the up seems the the first can question in results the bumping you've quarter a

the that So month market like I low seen face expand a a rates seeing that little on the just end? two? bit And expand that or the confidence power you're just you're that was seeing gives you of bit to you over rising last maybe little raise the in especially we've could pricing what hoping in upon

Bill Wheat

the seeing we're we certainly inventory, obviously our either we modest really expect market categories we Yes, at careful Alan see very which offset out our product keep Limited Because sure to product in raise there. can stable that affordable that still an there. about or where price believe but increases, prices to more to cost price. other the we just there, to we're the strong out markets strong. ability some ability want through very solid, pace affordable raise to we some Certainly increases is continue very to offset with but make

the market for tone feels our very just is overall very stable, and margin steady, So outlook year. for just solid

Jessica Hansen

to model revenues We stick-and-brick controlling our a a per nicely foot business our purchasing But our believe this again on our foot basis see continue square on teams We that year-over-year country across fantastic particularly square quarter. increase outpace Express. do with the did into per plays costs. job very

and we're more pressures neutral. the of relatively cost labor So material costs still seeing net same

Alan Ratner

we talking expect for type much of development a you early, trying are of embedding just XX% we you Good at looking you're Just from the the the Horton when what about Forestar quarter for Horton? on figure on those here. sense the deals about. as bit but I'm XX then you land could at out how even what thanks drilling and if actually to margin should as Forestar that well a those you you. want developer? And hoping different to Forestar of report really X detail. give opportunities to I margin When XX% deliver a for know give the will you what it's actually can type the sell homes Great, rough the you've they that second margin little lots think on parameters you're to of on if hear. Thank us and underwriting more you to look Should some closed, as

Mike Murray

focus Forestar to as from of those both Forestar side. are looking the continue very and Horton high the to the Those at the positive home underwrite underwriting the side. side on XX% that projects are and on at returns We looking And the to a teens, portfolio it we're at. continuing builder incrementally returns on primary we plus metric or metrics to return we're look inventory

focusing And so where will that's we're margins the and vary.

Alan Ratner

it. good got Okay, guys, luck. Thanks

Operator

Thank you.

coming next KeyBanc Our is Markets. from Zener Capital Ken from question Please proceed question. with your

Ken Zener

everybody. morning Good

David Auld

morning, Ken. Good

Ken Zener

gain So good, total your your the That is orders last rate inventory wonder the versus and question my growth the there - or about guidance why good, spec a to the share to ahead up, of why enables that's your of being is in in teens but units your relative did orders growth in has Is in of stronger obviously seasonality, other component you margin by spec I backlog something that hit gross is is building declined. declined units year. low your XX,XXX XX.X that spec component component year-over-year component terms builders? inventory when

Jessica Hansen

XX% Ken, in do and what don't for that's on earlier. spec apologize our cutting if count know actually up I is call, we out Our part was out the of year-over-year

Ken Zener

Okay.

in spec XX.X and your what count? what's So is total inventory units your

Jessica Hansen

about our is XX,XXX. count Our total in is and inventory XX,XXX spec units

Ken Zener

you mean, get material to slight margins, that? Thank the were is upward Is order the this up. guidance you. doing get tick? you're this labor really to Okay. that And different in margins Could are pace working there, that it something I if but know readdress is in you gross you're first to getting you why cut of margin on there obviously company a is there the is I there, revision gross upward things, lot gross

David Auld

very, hard of improve out product, working of to the it. take delivery the in very efficiency been We've deliveries labor

on into at now been - but a combination If we saw that's and and really And which quarter, positioned houses translating you the hard this margins, a more last getting be quarter. of lot actually better our last of dip product is return a uptick has work - little while look to in it a drive we competitive this margins. we stable slight improved just closed ASP saw

Ken Zener

Thank you.

Operator

you. Thank

Our JP Rehaut Please next from proceed your Morgan. question. from is Mike coming question with

Mike Rehaut

Thanks, morning everyone. good

the of the years. question, more First I of if highlighted higher cost the little to I apologize best or previous more bit have when fiscal been it statically. end sure due you got for for just might XXXX wanted also stable gross I answered But the margin increase feel than has and the kind you quarter little interest this you of make earlier were a in to litigation that less the the and warranty upside that first the that range the become of was drivers

primarily year costs I and good then warranty the are to that positives. infer a and by offset year? driven less revenue, as good the continue very the for all that But full drivers that obviously inflation, raise am So factors of for also main the litigation interest the full lower two perhaps roughly the these and percent is to that end the are of markets being able those which increase

Mike Murray

We trend margin, haven't a is has the why in moderated. We outlook see it's would stable we level was more prior to that able believe been business. margin we of stable today primary affecting Yes, Mike driver, seeing guidance this. the very core that at trend raise our our continue I were our a and to that reason say it's to the a

Mike Rehaut

XXXX, to guess, looking company great. and XX,XXX the in have being of already first a Right, you were evaluated, the to closed. expect that's ahead six And have that the also that for expectations, Forestar, of original on guidance, original now achieve slideshow the you okay I presentation with believe year. talked the deals deliveries I that's in close year you you be then helpful. No, XX are about eight And in also deals

we something would to you type be you XX,XXX further kind in and be XXXX, doing a Forestar in at XX that that years XX believe are if in could perhaps XX,XXX year - to of it's I XX,XXX of this the would on goal XX,XXX maybe look the as the had to is XXXX So, kind conclude number? range order of the first that out, in

Bill Wheat

I to that evaluate. out be granularity bit exceed last of comfortable deliveries. interim think quarter little We'll that we to details June that were Forestar some very thought and April. will And balance the that the what pleased the with periods. opportunities would in a been think those XXXX, projections, projects we XXXX more there right has be see goal in with XX,XXX we our indicated a now with guidance flow we be a we little updating try able to more able of share update more for we of But to in and I

Mike Rehaut

one And XX bps operating bps. raised guidance gross by margin if one quick Okay. by just guidance versus What's last the the XX margin there? could, reconciliation raised being the I

Jessica Hansen

margin, saying around whereas really have what a We pressures are reduced we margin, market, set to operating in have business. the quarter XX%. outsized margins last consider they would normalized their of first in couple reverting our XX.X% operating the we're was of operating The services seen to the we and financial to be now margin competitive mortgage only it's years in XX% about XX%, we seeing

Mike Rehaut

was I margin. Yes, perfect. thinking Okay, homebuilding operating

clarification. that for thanks So

Jessica Hansen

pre-tax consolidated of [indiscernible] XX%. XX.X% to Yes, margin

Mike Rehaut

Got a lot. thanks it,

Jessica Hansen

Thanks Mike.

Operator

you. Thank

from Kim next Stephen is Our coming from question ISI. Evercore

Your now live. line is

Stephen Kim

regions, meaningful why of surprised perhaps overall if looking and been last controls My comment respect really yours similar Horton strength few returns over among you also how are that or if to management reporting a different why the your sort of even and more aspiration results. at across and think on it focus - widest in discipline discipline, I and assets a of and Thanks not, made seeing the regions, your and the recently across years. of was I just itself were first the at your a have that's in somewhat all group. see we in team wide not company the that's With returns ROA we importance we metric kind to actually And the goal or relates seen not? not to spread were David, lot the the manifest was we of on see if you has discipline the was the I regions about really - impressive the know just the comment something degree guys, I question curious, across in of the

David Auld

striving and of we to in have Every at very years profitably is operate decentralized difficult to look us get markets gives what up a doing get Northeast like time I approach these to ability better. we different overtime Arizona operate these people markets a and we're scale that's entering. opportunities one are and with what do that other think couple a actually do the ago, and better operations we're or When of that

in I If to people in longest of see keep able you very - markets way time a at been lead the our that we've longevity think me. people industry you look of the that's the for and important period to

get a people Donald relationships better with people create approach and don't to we philosophy it, Horton, quick striving of on markets value shared. for Don something that's shareholders. within build top and the And changing to have work their to have out. don't We been we long-term the those So down on a I trigger

Stephen Kim

slightly way of If eight I never in bit question of little cycle Great. years is country. to seen thanks. again a extend that, increases. the housing consecutive in the very up different the that where we've We've housing the also discipline. start happened history cycle intrigued note That's first been appreciate talking a this about I could

it ever volatile more as it next housing you And demand talk it's noticeably cyclical in in that housing potentially in And how become rising years might about likely the Horton's environment. So likely in curious think couple visible in less you D.R. while if market more visible volatile discipline have you with we market could a if been to rate one? or if maybe may your incentives? was a cycles. How is more the more think spec strategy prior as than be and has I volatile of still to particularly be were was, respect

Bill Wheat

feel today of expecting the affordable maintain market most years. really interest underserved the still is to a out of affordable range. see that's end been very the environment. higher we've segment any an important And the at rates Steve, few quite We price product there to for that's in

rates now that we're So believe where interest as scenario. to very we into position we're a compete are period good in go we rising, a in

allow pleased trends we're also operations decentralized economies But to very in. respond us overall, affect to individual local market. when market we're that position in Our housing changes the with the

Mike Murray

growth And slow to formations. starts, relative continued a very housing trajectory also low population very a look of at from at the recovery. they're It has increasing been increasing household eight level but years

with the building the there being not occurring. to in that so speak, that. working against We're And and been out discipline industry has the amongst was overbuilt. players still So under

David Auld

seeing what how and cycle the other gets for developers small more a and not That factor went this think, And the And lack for. typically builders. - to Horton enjoy. disciplined, contributing financing oversupplied. through that's we doctors the and you're D.R. builders and it's has there just downturn. independent of is market lawyers no become out I they Lawyers that put extended that there product what's has been it's it's Much didn't the developers. become the all demand housing not all we

So working and we in we've environment. well us positioning that matter it's just great a of did market a And pretty got today. for execution. And

Stephen Kim

of lot guys and a Great, thanks best luck.

Mike Murray

you. Thank

Operator

Thank you.

question Our Jack is next coming Susquehanna. today from from Micenko

is live. line Your now

Soham Bhonsle

comments your Soham And of good other you dividend opening morning first raising Hey, what and in purchasing back down guys for paying coming on was just allocation. question This said in Jack today. priorities to the is My shares on offset forward capital debt, dilution. going guys. on to

Just raising mentioned curious you dividends.

a time? share the to dividend at what's wondering, over repurchase this driving favoring just increase So decision

Bill Wheat

shareholders a and been been to dividend distribution payer. to the through has preferred We've always method typically our continues be. That it steady years of

We have on we shares then really our dividends. to as to repurchases our some expect - now of and distributions of part of But level the been historical well. more through become begun recently to pattern shareholders that's consistent distributions pull that

Mike Murray

ago repurchased X.X shares to million to from the up year share repurchases no We quarter went in quarter. in the recent most

for an as the of see, a seeing focus and and be take our continue priority for opportunities in looking our there invest also high advantage opportunities increase that we business market So in to to would capital. return

Soham Bhonsle

one think that longer-term the SG&A XX% margins gross business? about that business. we And Okay. guys is right the then look level as guess Just about? margin think think Is referred profile I And pre-tax the to Forestar, through the too? lot for and gross SG&A XX,XXX trying you then percentage basis on the to what just for the like on

Bill Wheat

returns come guidance annual we focused with the the with call. like metrics their primary some mid-March at team is Forestar decisions. results after guiding get when updated reports more information focused we're we're focused returns we Right, the April and full are on And homebuilder, the Forestar the their our are as on in that back back we'll

Soham Bhonsle

thank Okay, you.

Operator

Thank you.

is question with Please your Deutsche next question. Nishu Bank. Our from proceed coming from Sood

Nishu Sood

you. Thank

deliveries First, come that of you because that and have consolidation seem XX,XXX XXXX would target am is to to Forestar? at XX%. thinking pretty going most about have relative where credit the not that to by The from? from Forestar? the thinking XX% I the XX% progress Is mentioned How about seem about lot think again which been increment here about roughly - up that to Or XX% XX% optioned difference help lot I up of from here that to would do make of think talking you folks to consistently. we make

Mike Murray

with both of two as do for the lot position. going the our as good both well as The it an as Forestar. feel have I really that sources still - supply land from see kind we'll I certainly think those out, but well that relationships from working mix are both you increased expanded exact developers developers coming between third-party Forestar

Nishu Sood

those some concern Got up. picked it, thanks. And in terms of having about mortgage rates obviously

that season, relative pretty is spring folks growth thinking the rates sharp move, been describing have the the are if worry that's pattern third year it during that continued what rates season? rising would spring better the to you, a how selling But are if about sharp X.X%, in selling on you a X% into in move fine. you level Now is heading there consistent

Jessica Hansen

There rise. is really said you really rate certain as sharp no they is issue an how on based it

short throughout the rise people today a good do very some affordable overall about we impact, they buyers' rate. spring afford, decent time, as if as period selling in season really long as adjust can even homes with which of in rising are doing a period sales XXXX. move and think rates. we that that we offering higher sharply we're feel while would to So resets we But of mindset expect We

David Auld

at X%, increase the to still the that amounts. less With X.X% close rents seen is be payment to we've or market, the in going in rent X% even than

actually And - people rates what seen is rates. we now. So in great it's increasing off are demand that right uncertainty and the these the accounts is pushing have [ph], is

positioning we're market within So, targets, each looking at feel our pretty and market it. meet individually to that about good

Nishu Sood

thanks Got for it, the color.

Mike Murray

you. Thank

Operator

you. Thank

from Our question. next with Dahl question proceed your coming Please from Mike Barclays. is

Michael Dahl

taking Hi, my for questions. thanks

third we're party? to view the it Forestar? to would another First from books large brought party more. issue would third been I'm through been the contributions more on that have A, guess I developed as Forestar a thinking versus up a deals thinking go and clearly about an and otherwise as having correctly; them am is be margin an is of that those further accounting far to if - and it how Or either of or But if other of or the B, your so around level partners gain - you'll truly I are total just think is or buy as lots margin -line own from a additional high then so if is question, standpoint then question these sourced about either you outsourcing it lots it gain capture about impact in Forestar on these or XX,XXX your

Mike Murray

be our them balance be capitalized on well not land Well to a the is Forestar sheet. large developer ultimately will for goal of national that

development balance they're the and returns will build be the There so are Ultimately while Horton platform capitalized, of in sheet. D.R. across just they that solid return in making. is that to the standalone down earn balance or a two have foundation the because they're Forestar on country portion of deals line land solid sheet build side in portion a next more building our in business. to our and a in putting pipeline when off we made business build the the process the the foundation position a on here provide the place and of will they are we strong for the And built, out make business a basis. investments profits that the on are them is to profitable lots in right that we're when deliver a across and putting now we efficient But and grow substantial help Forestar on platform profit, the a year will profits run will doing are short country. to that returning our of what will when process them more the build And

Michael Dahl

Got it.

about of what brands? ramp XXXX thinking the to course but in still you communities of update give it's type Freedom on at I piece can a the thanks. midst if observing a question, an over before your those looking we second just us I and and should this give sales of that homes. us meaningful Okay, in year small pace the guess, on how you you're the other know details any Could could ramp relative of And you over next business, course of the be

David Auld

Freedom, markets pushed are on community. set be different in a into Horton documents up than every the got it's what on we've introducing this more restricted market little actively community a bit we're working We've XX the little a HOA typically that

So less it buyer huge much demographic buyer situation ground put the been interest support brand. to segment, having and on lots they we are a that are a sensitive. It's to has rate where

be going year it's a five not this to impact certainly significant three if So then year to year period. we growth think next to

Mike Murray

at going within would a expectation it's the throughout now of our XXXX. X% few is see growth quarters growth mix, overall and we steady forward expect to Steady XXXX

Michael Dahl

Okay, thank you.

David Auld

very put the have outperformed it execute They on well. excited and about can we and Where ground those it. projects

Michael Dahl

Okay, Thanks. great.

Operator

you. Thank

Our Dan from from is coming Oppenheim UBS. next question

now is Your line live.

Dan Oppenheim

closing wondering that rates as period are the the actually you of specs for seeing built where you're seeing the very Thanks the terms as in And what about respond wondering attractiveness just is much. issues that talked was margins essentially and the with spec specs are coming of also potential the the of are consumer to margins lower increasing terms that Wondering seeing rate you of this specs I the on? you in the be others sorter are or time? through mortgage seeing about environment same here.

Mike Murray

XX% have reflects Specs and significant consistently our been a long-long those we XX% see home spec time. for now have part to a that deliveries operations of business every margins quarter and

seeing lot but home other home of but well. that's sales anything, not margin our performance just So we're with new not with compete and as which of spec communities existing solid a we across very sales, reflective as deliveries, is helpful

David Auld

there such we I margins very we program. month-to-month years. out most that not to reason three, Our our the create efficiency through building a inventory and on can throwing the maintain upon week-to-week is position are within it community it our believe, just spec that four And disciplined. demand starts stable plan operators these we of houses which we've a basis, We're to been able - past is the for overall believe part based

Jessica Hansen

a plan as and our rates, rate the today. sales our result Dan, of we're traffic very haven't the pace January in out in with or line as mortgage finishing seen environment we with terms month And pleased here any business our sales to impact actually in of

Dan Oppenheim

just does of actually in? help close specs the terms the I rate the conversion and specially service of then incentive can people - traffic do in more Jessica meant

David Auld

Absolutely.

Dan Oppenheim

thank Great, you.

Operator

you. Thank

next Our Please question. KBW. proceed Rahmani your Jade question is from with today coming from

Jade Rahmani

in various much. Thanks of wondering terms in very much trend How aspects several if home. you years? thoughts this you your solutions updated see over integrated off-site around I of could was the give do potential preconstruction of

Mike Murray

But we lot it's a look on-site of do in to we impact watching really don't a home. and affordable and rest and restrictable other with have more deliver and always to way on building in at that continue kind we view it's time, continually. efficient efficient on the ways penalization, we combination any watch that both to that at for will in be something what a looking more have this assure process of process in markets we're markets to the various different most but codified We the continue of places awarding,

Jade Rahmani

problems say where acute? And comment and on and constraints. the can pressures, are to most that availability managing are would related also cost How you you labor labor you

Mike Murray

quarter-to-quarter by our have we From from to cover kind to monitor are job get we our give done it's it with overall our that for varies really and high-level starting homes the across has come the the But staying delivering The of cycle then strategy, allowed to itself. part pricing we a the build us able on field build through. get hasn't increases to the increases seen issues production how power need. teams. to stick-and-brick we've top is manifesting absorption have to any - community been an labor in board great we any working we for in see cost spec have not of disciplined elongation having manifested the And problem most a the have labor. cost of us, of if that They the program broadly seen some in our itself cost

Jade Rahmani

Thanks very much.

Mike Murray

you. Thank

Operator

you. Thank

Horne question from Buck Our today James. final is Raymond coming from

live. Your line now is

Buck Horne

answered had a as I morning. on question good well. Thanks, get that but labor,

a ask I'll question my get So clients. from a that I lot

and that internally and how meaningful deductions, next? thinking guys taxes these Just local you has year effect maybe even state or if interest deductibility. states standard tax about might changes be about, certain Do this behavior, mortgage the on any and between you changes the law think buyer

Mike Murray

we're Buck segment homes affordable deliver with primarily we're the customer that looking serving. to whatever homes

rate at We negative tax expecting significant a not all changes. from impacted are the

we're people's to new go make the and more D.R. confident they to put emboldened it buy be fact in money In more from and are home decision to home affordable hopeful pockets Horton. to that that buy an

David Auld

all pretty build want the [ph] the Buck and home you rents is time. got in lock alternative equity your to if housing and you much costs,

economy, in those strong their both D.R. ramps pockets Horton. money a more are for it's So

Buck Horne

follow-up, given Okay, have you just partnering a for may working family product with guys built quick be other And to type rent itself? if of you. any presented or thank that thought that for operators single opportunity rental

David Auld

things we renters now can selling to you different of the by end creating lot And a you lot put we're a in are absorptions for people. from with me a pitched too community very get Right company problems driving family homeowners. owned happy up one homeowners. to of We the many single

about So, and under drive model to if that's were us. today like and think that we for offering feel we value But a homeowners was we we are absorption now probably combination like it. a and long-term then way to the to more work we absorption we drive our right looking winning

Buck Horne

Great helpful, I Thanks, thank that's you. very quarter it. appreciate guys,

David Auld

you. Thank

Operator

the We floor end the you. our reached question-and-answer Thank any or back further for of closing comments. to to I'd turn like session. over management

David Auld

in speaking to team, you again first to look our a Kevin. an XXXX. share forward And to for start strong you everyone's April, Thank appreciate call We on the you, to today to second results. the Horton and thank time and D.R. quarter quarter outstanding

proud are We Thank you. here. represent to up you

Operator

teleconference. today's conclude does That you. Thank

you may thank and wonderful your your at disconnect day. We today. time, You a have line this for participation

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