Builders Rise as Earnings Beat Estimates, Allaying FearsJohn Gittelsohn and Prashant Gopal
D.R. Horton Inc. 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. 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.
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.
“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.