Homebuilder D.R. Horton posts profit in fiscal 3rd quarter, but sees decline in new orders

D.R. Horton posts $50.5M profit for 3Q

LOS ANGELES — Homebuilder D.R. Horton Inc. said Tuesday it reversed a year-ago loss in its fiscal third quarter as homebuyers raced to close on purchases before the end of June to qualify for federal tax credits.

New home orders fell 3 percent in the absence of the government incentives, which expired at the end of April.

However, after dropping sharply from April to May, orders improved modestly in June and again in July, management said.

“Clearly, the two tax credits pulled forward demand, and now as we see in July, we’re getting back to a more normalized demand,” said Donald Tomnitz, D.R. Horton’s president and chief executive.

Still, Tomnitz noted that it will be difficult for the company to improve on its prior-year sales totals in the next three quarters because the tax credits are over. He also predicted next year and 2012 would be “tough years” for homebuilders.

“While we remain focused on gaining market share, for us to see significant, sustainable sales growth, we need to see improvement in the overall economy, the jobs landscape, and consumer confidence,” he said.

D.R. Horton shares fell 65 cents, or 5.8 percent, to close at $10.60 Tuesday.

Low mortgage interest rates and tax credits helped support sales and home orders for D.R. Horton and other builders this spring. But homebuilders have begun to see that sales momentum sputter in the months since the tax incentives ended on April 30.

Sales of new homes rose almost 24 percent in June after collapsing in May, but the increase was the second-slowest pace on record. And the number of buyers who signed contracts to purchase homes fell in June, the National Association of Realtors said Tuesday.

The weak home order trends on top of stubbornly high unemployment, sluggish economic growth and the prospect of more foreclosures have raised concerns the housing market recovery could stumble in the second half of the year.

D.R. Horton, which is based in Fort Worth, Texas, has operations in 26 states and primarily targets first-time homebuyers with homes selling as low as $90,000.

Still enjoying a boost from the tax credits, D.R. Horton reported net income of $50.5 million, or 16 cents a share, in the three months ended June 30. That compares with a net loss of $143.8 million, or 45 cents a share, in the prior-year period.

Revenue jumped 51 percent to $1.38 billion, with the number of closed sales jumping 60 percent to 6,805 homes.

The jump was fueled by a government credit of $8,000 for first-time buyers and $6,500 for current homeowners who buy and move into another property. Buyers had to have signed a contract by the end of April and initially had until the end of June to complete the deal. Lawmakers later extended the deadline to close on a home purchase and still qualify for the tax credit to Sept. 30.

Horton’s results came in roughly as expected. Analysts surveyed by Thomson Reuters expected earnings of 16 cents per share and revenue of $1.34 billion.

Ticonderoga Securities analyst Stephen East said in a research note that D.R. Horton did a very good job of generating orders and reducing the number of already built unsold homes in its inventory.

Orders were up 33 percent in D.R. Horton’s Southeastern markets, but down 27 percent in its Southwestern communities.

While other builders have complained of soft sales in Texas, D.R. Horton’s orders in the region that includes the state were down 4.9 percent.

“We believe we now know who took other builders’ sales,” East wrote.

The average sales price of a D.R. Horton home in the quarter was flat at $208,400.

Cancelations rose to 28 percent, as many buyers who raced to sign a contract on a home before April 30 ended up dropping out because they didn’t meet financing requirements, the company said.

The tax credits pulled home sales that normally might have occurred this summer into the spring, which means D.R. Horton’s April-June quarter will be its strongest of the fiscal year, the company said.

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D.R. Horton: www.drhorton.com/