DR Horton Meets EPS, Sales Miss

DR Horton Inc. (DHI - Analyst Report) reported adjusted net earnings of 20 cents per share in the third quarter of fiscal 2012, versus 9 cents in the year-ago quarter. Earnings per share were in line with the Zacks Consensus Estimate. The earnings upsurge was driven by increase in homebuilding revenues.

Homebuilding revenues climbed 14.0% year over year to $1.12 billion, driven by growth in net sales orders, homes closed and sales order backlog. Reported revenues, however, missed the Zacks Consensus Estimate of $1.18 billion.

Quarter in Detail

Home sales increased 14.4% year over year to $1.1 billion, driven by strong growth in net sales orders. On the other hand, land sales contributed $1.0 million to revenues compared with $0.9 million in the prior year.

Net sales orders grew 25% in the third quarter of 2012 to 6,079 homes. The value of net orders grew 32% to $1.4 billion from $1.1 billion in the third quarter of 2011, owing to the improving housing market. Home closings were up 9.0% to 4,957 in the reported quarter compared with 4,555 homes in the year-ago period.

The company’s backlog totaled 7,311 homes as of June 30, 2012, up 31% from 5,600 homes as of June 30, 2011. Potential housing revenues from backlog rose 40% to $1.7 billion from $1.2 billion, primarily due to increases in backlog revenue in all operating regions. Sales order backlog represent homes under contract but not yet closed at the end of a certain period.

Gross profit on home sales was $200.6 million versus $161.0 million in the prior-year quarter. Selling, general & administrative (SG&A) expenses were $136.4 million, up 20% from the prior-year quarter. Operating income from financial services came in at $13.9 million versus $6.7 million in the prior-year quarter. Consolidated pre-tax income was $72 million in the quarter versus $28.9 million in the prior-year quarter.

DR Horton’s homebuilding cash, cash equivalents and marketable securities totaled $1.2 billion as of June 30, 2012 versus 1.0 billion at the end of March 31, 2012. During the third quarter of 2012, the company issued senior notes worth $350 million due on May, 2017, which carry an interest rate of 4.75%.

Dividend Announcement

The company announced that it will pay a quarterly cash dividend of $0.0375 per share on August 24, 2012 to shareholders of record on August 13, 2012.

Outlook

The company expects profitability in the fourth quarter of fiscal 2012 and fiscal 2013. The company is well positioned with its strong balance sheet and liquidity and intends to expand its business in fiscal 2013.

We currently have a Neutral recommendation on DR Horton. The stock carries a Zacks #2 Rank (a short-term Buy rating).

We appreciate the company’s strong position and believe that the company will benefit from the recovering market conditions. However, home price appreciation is limited and the housing market continues to suffer from oversupply.