DR Horton EPS Tops, Revenue Misses

DR Horton Inc. (DHI - Analyst Report) reported net income of $27.7 million or 9 cents per share in the first quarter of fiscal 2012 versus a net loss of $20.4 million or 6 cents per share in the year-ago quarter. Earnings per share outperformed the Zacks Consensus Estimate of 5 cents.

Total revenues increased 15% year over year to $885.6 million, driven by increase in homebuilding revenues. Reported revenues, however, fell short of the Zacks Consensus Estimate of $920 billion.

Homebuilding revenues climbed 16.0% year over year to $884.3 million, on the back of improved home sales. Revenues from financial services remained flat at $21 million. On the other hand, land sales contributed $1.3 million to revenues compared with $5.9 million in the prior year.

Net sales orders in the fourth quarter totaled 3,794 homes, valued at $823.3 million, compared with 3,363 homes, amounting to $705.6 million in the year-ago quarter. Order cancellation rate fell to 26% during the quarter from 28% in the previous-year quarter. The quarter-end backlog rose 18% to 4,530 homes, amounting to $975 million from 3,854 homes valuing $795.4 million at the end of first quarter of 2011.

DR Horton’s homebuilding cash, cash equivalents and marketable securities totaled $1.06 billion as of December 30, 2011, flat compared with as of September 30, 2010. Homebuilding notes payable were $1,582 million at the end of the first quarter of fiscal 2012 compared with $1,588.1 million at the end of the fourth quarter of fiscal 2011. During the quarter, DR Horton repurchased $10.8 million of its 6.5% senior notes due 2016 for $10.6 million.

During the quarter, the company’s board of directors announced a quarterly cash dividend of 3.75 cents per share, payable on February 21, 2012 to shareholders of record at the close of business on February 10, 2012.

Our Take

Amid deteriorating home demand, DR Horton is attempting to streamline supply with demand through attractive incentive schemes. Further, the company has also managed to execute aggressive land purchasing plans even during the economic downturn to capitalize on the availability of cheap lots at vital locations, which would have been expensive in a normal market.

However, higher home mortgage foreclosures has increased supply and pulled back prices, thereby making the purchase of foreclosed home an attractive alternative than buying a new home. This has increased competition and reduced the chances of implementing a price rise for residential properties.

Keeping these in mind, the shares of DR Horton Inc. are maintaining a Zacks #3 Rank, which translates into a short-term Hold rating. Alongside, the shares also have a Neutral recommendation over the long term.

Texas-based DR Horton Inc. is one of the largest national homebuilders, primarily engaged in the construction and sale of single-family houses both in the entry-level and move-up markets. It competes with the likes of KB Home (KBH - Analyst Report), Lennar Corp. (LEN - Analyst Report) and PulteGroup, Inc. (PHM - Analyst Report).

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