D.R. Horton Reports Unexpected Profit on Tax Benefit as Home Sales Decline

D.R. Horton Inc., the second- largest U.S. homebuilder by revenue, reported a surprise second- quarter profit as a tax benefit helped offset slumping sales.

Net income for the quarter ended March 31 was $27.8 million, or 9 cents a share, up from $11.4 million, or 4 cents, a year earlier, the Fort Worth, Texas-based company said in a statement today. The average estimate was for a loss of 5 cents a share, according to a Bloomberg survey of 18 analysts.

U.S. homebuilders have struggled with weak demand and competition from lower-priced existing homes as a glut of foreclosures drives down values. D.R. Horton’s results included a $59.2 million tax benefit, without which the company would have reported a wider loss than some analysts estimated because of a drop in revenue and higher expenses, said Jack Micenko, an analyst with Susquehanna International Group LLP in New York.

“Other builders have been cutting, cutting, cutting costs given the new norm,” Micenko, who rates the stock “neutral,” said today in a telephone interview. “It’s a bit confusing.”

U.S. new homes sold in March at an annual pace of 300,000, up from February’s record low of 270,000, the Commerce Department reported April 25. The average annual rate each month for the past 10 years was about 829,000 homes.

D.R. Horton’s homebuilding revenue fell to $733.1 million from $896.8 million a year earlier. Home orders decreased to 4,943 from 6,438.

‘Still Challenging’

“Market conditions in the homebuilding industry are still challenging, with high foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards and weak consumer confidence,” Chairman Donald R. Horton said in the statement.

The company didn’t give the reason for the tax gain in the statement. Micenko estimated the company’s loss excluding the benefit was $31.4 million, or 10 cents a share. He expected the company to break even.

Selling, general and administrative expenses were $123.2 million, or about 17 percent of homebuilding revenue, compared with 14 percent a year earlier, as the company opened new communities and increased its inventory by 1,400 unsold homes, Micenko said.

Stephen East, an analyst with Ticonderoga Securities LLC in New York, said the loss was 3 cents a share before one-time items. The company’s results were a “net positive, in a somewhat muted manner,” East, who has a “buy” rating, said in a note to clients.

“Given the weak market and generally disappointing builder earnings to date this quarter, we believe this result should put some wind under DHI’s sails,” he wrote, referring to the company’s ticker symbol on the New York Stock Exchange.

D.R. Horton released earnings before U.S. markets opened. The stock gained 7 cents to $12.10 yesterday. It rose 1.4 percent this year, compared with a 2.9 percent advance in the 12-member Standard & Poor’s Supercomposite Homebuilding index.

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

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