Leading homebuilder
DR Horton Inc.
(
DHI
) reported adjusted net earnings (excluding inventory impairments
and land option write-off costs) of 12 cents per share in the
second quarter of fiscal 2012 versus 3 cents per share in the
year-ago quarter. Earnings per share largely outperformed the Zacks
Consensus Estimate of 4 cents. The earnings upsurge was driven by
strong operating results in both the homebuilding and financial
services segments.
Homebuilding revenues climbed 28.0% year over year to $935.6
million, driven by double-digit growth in net sales orders, homes
closed and sales order backlog. Reported revenues also beat the
Zacks Consensus Estimate of $840 million by a wide margin.
Quarter in Detail
Home sales increased 27.0% year over year to $930.6 million,
driven by strong growth in net sales orders. On the other hand,
land sales contributed $5.0 million to revenues compared with a
measly $0.1 million in the prior year.
Net sales orders in the second quarter totaled 5,899 homes
(valued at $1.3 billion), up 19% in terms of numbers over the
prior-year quarter. Net sales orders also jumped approximately 55%
sequentially. Home closings were up 21.0% to 4,240 homes in
the reported quarter compared with 3,516 homes a year ago.
The quarter-end sales order backlog rose 17% to 6,189 homes,
amounting to $1.4 billion, from 5,281 homes valued at $1.1 billion
at the end of the second quarter of 2011. Sales order backlog
represents homes under contract but not yet closed at the end of a
certain period.
Gross profit on home sales was $163.4 million versus $119.1
million in the prior-year quarter. Selling, general &
administrative (SG&A) expenses were 13.6% of homebuilding
revenue versus 16.8% in the prior-year quarter as the company
leveraged its fixed costs. Operating income from financial services
came in at $7.7 million versus $1.6 million in the prior-year
quarter. Consolidated pretax income was thus $42.3 million in the
quarter compared with a pre-tax loss of $30.8 million in the
prior-year quarter.
DR Horton's homebuilding cash, cash equivalents and marketable
securities totaled $961.3 million as of March 31, 2012, versus 1.06
billion at the end of December 30, 2011.
Dividend Announcement
The company announced that it will pay a quarterly cash dividend
of $0.0375 per share on May 22, 2012 to shareholders of record on
May 8, 2012.
Outlook
The company retained its first-quarter momentum in the second
quarter, too, with yet another earnings beat. DR Horton had started
the financial year on a strong note despite macroeconomic
uncertainties and housing conditions remaining soft. The company
expects to be profitable in the next half of the fiscal year as
well.
Management expects stronger home closings in the third and
fourth quarters of fiscal 2012 as demand for new homes historically
ramp in the latter half of the year. Gross margin is expected be in
the mid-16%-mid17% range in 2012. SG&A is expected to increase
in the third and fourth quarters of 2012. However, SG&A as a
percentage of revenue will gradually improve in these quarters due
to strong home closings and better fixed cost leverage.
Our Recommendation
We currently have a Neutral recommendation on DR Horton. The
stock carries a Zacks #3 Rank in the near term (Hold rating).
The last few years have seen a very fragile housing market. The
downturn in the housing industry - aggravated by an overall weak
economy, high unemployment rates, low consumer confidence, rising
interest rates and tightened mortgage lending standards- has been
weighing down on homebuilders like DR Horton and its compatriots
KB Home
(
KBH
),
Pulte Group
(
PHM
) and
Lennar Corporation
(
LEN
). Declining demand for new homes and an excess of supply in the
market in 2011 drove DR Horton to make large concessions in
prices.
Come 2012, there has been a definite improvement in demand in
the homebuilding sector. The company's strong performance in the
first half is a testament to the fact. Moreover, DR Horton enjoys
strong cash flows which are helpful in paying back outstanding
debts. All said, we would still prefer to remain on the sidelines
until we witness a speedy recovery in the overall housing
market.
D R HORTON INC (
DHI
): Free Stock Analysis Report
KB HOME (
KBH
): Free Stock Analysis Report
LENNAR CORP -A (
LEN
): Free Stock Analysis Report
PULTE GROUP ONC (
PHM
): Free Stock Analysis Report
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