(Reuters) - D.R. Horton Inc (DHI.N) topped expectations for quarterly profit and forecast 2020 home sales above analysts’ estimates, as cheaper mortgage rates buoyed demand from buyers, sending shares in the biggest U.S. homebuilder up as much as 6%.
The company said it pulled back on incentives in the fourth quarter, but they remained elevated for higher-priced homes. Horton spent more on incentives in late 2018 and early this year as affordability concerns had hit demand.
In the quarter, the company’s average price for orders was $302,300, up only 1% from last year but in line with the broader trend of easing home prices as builders targeted first-time buyers and focused on more lower-priced homes.
The median new house price fell 8.8% to $299,400 in September from a year ago, data from the Commerce Department showed.
“Homes, they’re affordable as they’re going to get .. But right now, the market feels really, really good,” Chief Executive David Auld said on a post-earnings-call.
However, the company said it does not expect margins to expand in 2020, citing increasing competition. Horton forecast full-year gross margins at about 21% - same as what it reported for the fourth quarter.
“We feel good about maintaining our gross margin around the range it is right now, but it’s really going to be dependent on the spring,” a company executive said on the call.
Home sales rose 9.2% to 16,024 units in the quarter, underpinning a 10-cent beat on profit. Orders rose 14.1% to 13,130 homes.
Horton, which builds roughly 10% of all new U.S. homes, said it expects 2020 sales to be between 60,000 and 61,000 homes, compared with estimates of 59,737 homes, a reflection of the broader stabilization of demand for U.S. property.
JMP Securities analyst Peter Martin said that lower interest rates and the company’s strategy of building more affordable homes had helped ease some of the tensions that hurt results a year ago.
“If they (Horton) can keep supplying homes at a lower price point, and stay in the current range of interest rates, I think they are going to have a very nice year.”
The company’s shares were last up 1% at $53.06.
Reporting by Sanjana Shivdas in Bengaluru; Editing by Maju Samuel