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D.R. Horton Earnings Climb on Tax Benefit, Higher Sales

D.R. Horton Inc. (DHI), the largest U.S. homebuilder by volume, said its fiscal third-quarter earnings rose as a tax benefit was realized and sales improved.

Net income was $787.8 million, or $2.22 a share, in the three months ended June 30, up from $28.7 million, or 9 cents, a year earlier, the Fort Worth, Texas-based company said today in a statement. The results included $716.7 million from the partial reversal of deferred tax assets tied to losses during the housing crash.

“Although order growth underperformed peers somewhat, they beat ours and consensus expectations,” Adam Rudiger, a Wells Fargo & Co. analyst, wrote in a note today. He rates D.R. Horton outperform, the equivalent of a buy recommendation. “Negatively, revenues were lower than expected.”

D.R. Horton, which has reported six straight quarters of profit, is among publicly traded builders reporting increases in orders even as deals are restrained in the broader U.S. housing market, where sales have been hampered by an 8.2 percent unemployment rate, tight lending standards and limited inventory. D.R. Horton’s orders climbed 25 percent from a year earlier to 6,079.

The builder dropped 2.2 percent to $18.39 at the close in New York. The 11-member Standard & Poor’s 1500 Homebuilding index was little changed.

D.R. Horton homes signs in Rockwall, Texas. Photogrpaher: Mike Fuentes/Bloomberg Close

D.R. Horton homes signs in Rockwall, Texas. Photogrpaher: Mike Fuentes/Bloomberg

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D.R. Horton homes signs in Rockwall, Texas. Photogrpaher: Mike Fuentes/Bloomberg

‘Be Buyers’

“If the market wants to push it down, we want to be buyers,” Stephen East, an analyst with International Strategy & Investment Group LLC in Saint Charles, Missouri, wrote in a research note today after the D.R. Horton shares initially dropped 6.3 percent. He has a buy rating on the builder. “At the end of the analysis, the positives very easily outweigh the negatives.”

Earnings excluding the tax reversal were about 22 cents a share, according to Megan McGrath, an analyst with MKM Partners LLC in Stamford, Connecticut. The average estimate of 18 analysts surveyed by Bloomberg was for earnings of 19 cents.

Builders broke ground on new single-family houses at an annual pace of 539,000 last month, up 4.7 percent from May and the fastest rate in two years, the Commerce Department said last week. Confidence among U.S. homebuilders increased in July by the most in almost a decade, according to a National Association of Home Builders/Wells Fargo index.

Choppy Recovery

A national recovery has been choppy. U.S. new-home sales fell unexpectedly in June to an annual pace of 350,000, an 8.4 percent decline from May, the Commerce Department reported July 25. Contracts to buy existing homes dropped 1.4 percent last month, the National Association of Realtors said yesterday.

Pretax profit at D.R. Horton, which has broadened its market to move-up homeowners in addition to first-time buyers, climbed to $72.2 million from $28.9 million. Homebuilding revenue was $1.1 billion, up from $975.4 million a year earlier. The number of completed home sales rose 9 percent to 4,957. The backlog of properties under contract, an indicator of future revenue, increased 31 percent to 7,311.

“We transitioned from defense to offense, raising new capital, investing our cash in the business, improving our operating margin and growing our profits,” Chief Executive Officer Donald Tomnitz said on a conference call today. “We believe these are the initial stages of long-term growth for D.R. Horton.”

The shares of PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, rose the most since 2008 yesterday after the company reported earnings that were higher than estimated and a 32 percent jump in orders in the quarter ended June 30.

To contact the reporters on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net; Prashant Gopal in New York at pgopal2@bloomberg.net

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

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