Builders Rise as Earnings Beat Estimates, Allaying Fears

D.R. Horton Inc. (DHI) climbed the most in three months after the builder unveiled a line of low-cost homes and reported earnings that beat estimates, helping allay fears of a faltering housing recovery.

Net income was $131 million, or 38 cents a share, for the fiscal second quarter ended March 31, the Fort Worth, Texas-based company said in a statement today. The average of 14 analysts was for earnings of 34 cents a share, according to data compiled by Bloomberg. Separately, homebuilder PulteGroup Inc. (PHM) reported an increase in income before taxes.

The announcements come a day after the Commerce Department said new-home purchases plunged 14.5 percent in March and two days after the National Association of Realtors said existing-home sales fell 7.5 percent during the month, stoking concerns the two-year housing recovery is running out of gas.

“We are experiencing solid demand and profitability in the heart of our business,” D.R. Horton Chief Executive Officer Donald Tomnitz said on a conference call today. “Housing-market conditions remained favorable and continue to improve, consistent with our long-stated expectations for the housing recovery.”

D.R. Horton, the largest U.S. homebuilder by revenue, rose 8.3 percent to $23.13, making it the second-biggest gainer among the 11 companies in the Standard & Poor’s Supercomposite Homebuilding Index. It was the builder’s largest increase since Jan. 28, when it reported earnings that beat estimates for the fiscal first quarter.

Orders Increase

In the second quarter, orders increased 9 percent in volume and 20 percent in value as average prices increased.

The company also said it’s starting to sell a new brand called Express Homes in 13 markets in four states. The houses are targeted at first-time buyers with prices as low as $120,000.

“The true entry level is under-served in the current market, especially after significant increases in home prices in the last two years,” Tomnitz said. “Key, I think, to expanding our business on a go-forward basis in a rising-interest-rate environment is to be able to offer a lower-priced but competitive, well-built house.”

D.R. Horton’s average sales price for the quarter was $278,900, up 10 percent from a year earlier. First-time homebuyers represented 42 percent of closings by the builder’s mortgage company, compared with 50 percent a year ago.

Entry Level

“We view the move positively if it enables DHI to capture some lower-qualified buyers struggling with current affordability,” Adam Rudiger, an analyst with Wells Fargo & Co., said in a note today. Rudiger, who has an outperform rating on the company, expected earnings of 31 cents.

PulteGroup’s first-quarter net income declined to $74.8 million, or 19 cents a share, from $81.8 million, or 21 cents, a year earlier, the Bloomfield Hills, Michigan-based company said today in a statement. The average of 19 analyst estimates was for earnings of 20 cents a share, according to data compiled by Bloomberg.

PulteGroup’s profit was hurt by a tax expense of $55.2 million, or 14 cents a share, according to the statement. That compares with less than 1 cent a share a year earlier. Pretax income at PulteGroup, the second-largest U.S. builder by market value, increased 58 percent to $130 million.

The shares gained 2.3 percent to $18.99.

“The industry is still in the early stages of what will be a sustained, multiyear recovery, but one that will develop at a more measured pace than past housing recoveries,” PulteGroup CEO Richard Dugas said on a conference call today.

At D.R. Horton, homebuilding revenue in the latest quarter rose to $1.68 billion from $1.39 billion a year earlier. The company sold 6,194 homes, up from 5,643, and orders increased to 8,569 from 7,879.

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

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net Daniel Taub, Christine Maurus

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