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D.R. Horton Rises After Earnings Beat Estimates on Cost Cuts

D.R. Horton Inc., the second-largest homebuilder by revenue, advanced for the first time in a week after the company reported a quarterly profit that beat analyst estimates on cost savings.

The stock gained 30 cents, or 2.6 percent, to $11.90 as of 4:15 p.m. in New York Stock Exchange composite trading. That pared D.R. Horton’s decline for the year to 0.3 percent, compared with a 6.9 percent slump in the 12-member Standard & Poor’s Supercomposite Homebuilding Index.

D.R. Horton has been reducing costs and shifting its focus to move-up buyers as the U.S. housing market slumps. The Fort Worth, Texas-based company lowered selling, general and administrative costs by 21 percent in its fiscal third quarter, helping it to top profit estimates as revenue decreased.

The “results reinforce our thesis that the company is better positioned than many of its peers in its ability to operate profitably in the current depressed environment,” Adam Rudiger, senior analyst with Wells Fargo & Co. in San Francisco, said in a note today. Rudiger rates D.R. Horton “outperform.”

The S&P homebuilders index climbed as much as 4.1 percent today after D.R. Horton’s better-than-estimated earnings and an increase in pending home resales. The gauge erased the gain to close little changed after U.S. lawmakers indicated they were no closer to reaching an agreement to increase the debt ceiling.

New-Home Sales

U.S. homebuilders have struggled to increase sales as foreclosures, tighter lending standards and an unemployment rate above 9 percent depress demand for houses. Purchases of new U.S. homes dropped 1 percent in June to a three-month low, the Commerce Department said July 26.

Pending home sales, which measure contracts to buy previously owned houses, rose 2.4 percent in June, the National Association of Realtors said today. Economists had forecast a 2 percent decline, according to the median estimate in a Bloomberg News survey. While signings are increasing, some contracts may not translate into closings because of cancellations, said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.

D.R. Horton’s net income for the three months ended June 30 was $28.7 million, or 9 cents a share, compared with $50.5 million, or 16 cents, a year earlier, the homebuilder said in a statement today. Analysts expected a profit of 6 cents a share, the average of 18 estimates compiled by Bloomberg.

Revenue Decline

Third-quarter revenue fell to $975.4 million from $1.38 billion a year earlier. Orders decreased to 4,874 homes from 4,921. Its sales order backlog, an indicator of future revenue, increased to 5,600 homes worth $1.2 billion from 4,430 homes worth $1 billion a year earlier.

“Closings in the third quarter were greater than the first and second quarter and we expect fourth quarter closings to be greater than the third,” Chief Executive Officer Donald Tomnitz said on a conference call today. “We are now solidly in a position to be profitable for the full fiscal year.”

Tomnitz, who was born in 1948 and served as CEO since 2000, indicated he has no plans to retire soon.

“I’m staying until we can get back to closing over 50,000 units,” he said. The company closed on about 16,000 homes over the past four quarters, compared with more than 53,000 during the peak in 2006.

PulteGroup Inc., the largest U.S. homebuilder by revenue, fell 2.9 percent to $6.80 after the Bloomfield Hills, Michigan-based company reported a second-quarter loss that was wider than analysts estimated. The results were hurt by a higher-than-expected loss from financial services, David Goldberg, an analyst with UBS AG in New York, wrote in a note to clients.

“We are considerably more positive on DHI than PHM among the big, national homebuilders,” Michael Smith, an analyst with JMP Securities LLC in San Francisco, wrote in a note today, referring to D.R. Horton and Pulte’s ticker symbols on the New York Stock Exchange. “Horton beat estimates; Pulte missed.”

Smith rates D.R. Horton “market outperform” and Pulte “market perform.”

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