D.R. Horton's home sales forecast, $4 billion buyback send shares to record high

By Ananta Agarwal

(Reuters) -D.R. Horton tightened its annual forecast for home sales and beat Wall Street estimates for quarterly profit on Thursday, as historically low U.S. supplies prop up demand despite elevated mortgage rates, sending its shares to a record high.

The largest U.S. homebuilder by sales volume now expects to deliver between 90,000 and 90,500 homes in fiscal 2024, the mid-point of which is higher than its prior forecast of 89,000 to 91,000.

"Homebuyer demand during the spring selling season was good despite continued affordability challenges," CEO Paul Romanowski said on a post-earnings call with analysts.

Supply of existing homes, which account for a large portion of U.S. housing sales, have dried up as homeowners with fixed rates below 5% have avoided reselling in the face of the popular 30-year, fixed-mortgage rate hovering around 7%.

The company's shares rose more than 12% to an all-time high of $177.47, also boosted by a new $4 billion buyback authorization.

The company expects to generate increased cash flow in fiscal 2025 as its rental investments stabilize, which, it has said, will be used to increase shareholder returns.

"Investors for several quarters expressed concern that the rental investment was a drag on cash generation. That is starting to change," said Tyler Batory, equity analyst at Oppenheimer.

To address affordability in its homebuilding business, D.R. Horton has reduced prices and the size of its homes.

Still, home sales gross margins came in at 24% in the third quarter, above the company's expectations of 23% to 23.5%, as incentive costs, including discounts on mortgage rates, eased.

"We did maintain incentives but didn't lean in too hard," said CEO Romanowski.

The gross margins outlook for the fourth quarter, expected to remain at current levels, also eased investor concerns, said Oppenheimer's Batory.

The company tightened its full-year revenue forecast to $36.8 billion to $37.2 billion.

The Arlington, Texas-based homebuilder's earnings of $4.10 per share came in above analysts' average estimate of $3.75, according to LSEG data.

(Reporting by Ananta Agarwal in Bengaluru; Editing by Sriraj Kalluvila and Maju Samuel)