D.R. Horton 'sidestepped' industry-crippling labor shortage to post 23% bump in deliveries

Dive Brief:

D.R. Horton, the nation's largest homebuilder, announced a 23% year-over-year gain in delivered homes for its fourth quarter ending Sept. 30, despite the industry-wide challenges of labor shortages and the resulting rise in labor costs.
Horton contracted to sell 8,477 homes last quarter, up 19% from the same period in 2013, and delivered 10,576 homes. The company’s pre-tax profit margin increased 0.6% to 10.7%, and it reported a 27% increase in sales last quarter to $3.1 billion. Net income rose 44% to $238.9 million.
Unlike Horton, competitors PulteGroup, Inc., and MDC Holdings, Inc., announced reductions in home deliveries last quarter, and Meritage Homes Corp., revised its financial outlook — with all three builders suffering from the burden of a scarcity of skilled labor, according to The Wall Street Journal.

Dive Insight:

"No question, labor is tight," D.R. Horton CEO David Auld said Tuesday during an investor conference call. "The reports coming out from other builders — we’re not immune to it. I think we may have mitigated it by having the best operating team in the industry. The relationships that our people have with vendors and suppliers put us at the front of the line."

So far, Horton has "sidestepped the labor shortages plaguing many of its peers," The Journal noted, and hasn't yet needed to increase its labor costs to entice former construction workers back from other industries — a fact that is reflected in the company’s numbers for last quarter. However, industry analysts predict that, eventually even Horton will soon have to pay higher prices for labor.

During a webinar last week, National Association of Home Builders Chief Economist David Crowe said he believes the labor shortage is continuing largely due to the fact that construction wages are less competitive than before the recession. "In 1990, the typical residential worker made 14% more than general wage rate. What's disturbing now is that ratio is down to 4% more. The competitive level is not as good as it was. Unfortunately, that means one of the solutions to the labor shortage is to raise wages," he said.

D.R. Horton is optimistic about growth next year and predicted its 2016 revenue will increase 11% to $12 billion to $12.5 billion. The company also estimated it will deliver between 39,500 and 41,500 homes, up approximately 7.8% from last year.

"We still think there are legs left in this (housing) cycle," Auld said. "We’re not even close to what is historical demand."