D.R. Horton sees surge in home-building sales, income

Posted Thursday, Jul. 25, 2013  comments  Print Reprints
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D.R. Horton continued to ride the wave of an improving national housing market in its most recent quarter, reporting a $146 million profit and operating income from home building that more than tripled from the year-ago period.

But the stock (ticker: DHI) tumbled more than 8 percent after the company reported fewer new orders than expected and said rising mortgage rates began to slow business in June.

The Fort Worth-based home builder said its fiscal third-quarter profit was $146 million, or 42 cents a diluted share, compared with $787.8 million, or $2.22 a share, in the same quarter of fiscal 2012. Income in the prior year was swelled by a noncash tax benefit of $716.7 million related to losses incurred during the housing crash.

Donald Tomnitz, Horton’s chief executive officer, told Wall Street analysts Thursday that the quarter was the company’s best since the housing market collapsed in 2006.

He said the strong performance can be partly attributed to higher home prices and sales of homes priced above $500,000, part of its business that should keep improving over the next four years.

Horton entered into the luxury market a couple of years ago and has seen its luxury-home business increase to 3.4 percent of sales from 2.5 percent last year.

Horton said its average home sale price rose in the quarter to $252,300, up 12 percent from a year ago.

Horton’s stock closed down $1.82 a share Thursday at $19.38.

Horton is enjoying pricing power that it “hasn’t had in five to six years,” Tomnitz said.

“We have seen no lack of ability to increase our prices,” Tomnitz said. “It’s time for prices to go up. Land prices are going up. Costs are going up. Buyers had an advantage a few years ago because inventory was so high. There’s not as much inventory.”

Tomnitz said the company did begin to see some slowing in the back half of the quarter when mortgage rates rose and potential buyers delayed decisions. But, he said, those buyers will eventually return.

Horton saw its cancellation rate for the fiscal third quarter rise to 24 percent from 19 percent in the second quarter, when interest rates were lower.

Home-building revenue reached $1.6 billion in the quarter that ended June 30, up 47 percent from a year ago, and operating income from home building was $185.4 million, up from $58.3 million.

Horton also said pretax income rose 184 percent to $205.1 million, compared with $72.2 million a year ago.

Sales orders in the third quarter rose 12 percent to 6,822 homes, up from 6,079 in the 2012 quarter, and closings rose 33 percent to 6,464. Its sales order backlog rose to 9,911 in the quarter, up from 7,311 last year.

“There is going to be good demand for houses,” Tomnitz said.

The company ended the quarter with $607.8 million in cash and cash equivalents.

Sandra Baker, 817-390-7727 Twitter: @SandraBakerFWST

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