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One of the largest homebuilders in the U.S., D.R. Horton, Inc (DHI - Analyst Report) beats both the Zacks Consensus Estimates in the first quarter of fiscal 2013.

The company reported net earnings of 20 cents per share in the first quarter of fiscal 2013 versus 9 cents in the year-ago quarter. Earnings per share beat the Zacks Consensus Estimate of 14 cents by 50%. The 133.3% year-over-year earnings upsurge was driven by an increase in homebuilding revenues.

Homebuilding revenues climbed 39.0% year over year to $1.23 billion, driven by price increases and double digit growth in net sales orders, homes closed and sales order backlog. Reported revenues beat the Zacks Consensus Estimate of $1.10 billion.

Quarter in Detail

Most of the company’s revenue originates from the sale of completed homes and a small portion of revenue comes from the sale of land and lots.

The company reported home sales of $1.22 billion in the first quarter of fiscal 2013, up 33.3% y/y driven by strong growth in net sales orders. Home sales revenue increased in all the markets.  

Net sales orders of the company were 5,259 homes in first quarter of fiscal 2013, up 39% y/y, driven by an increase in demand for homes in most of the regions. The value of net sales order grew 60% to $1.3 billion in the quarter.

The company closed 5,182 homes in first quarter of fiscal 2013, up 26% y/y. Prices increased in the quarter on the back of favorable geographic mix and larger homes.

The quarter-end sales order backlog rose 62% to 7,317 homes as of Dec 31, 2012 from 4,530 homes as of Dec 31, 2011. The value of backlog rose 80% to $1.8 billion as of Dec 31, 2012 from $1.0 billion as of Dec 31, 2011.  

Land sales contributed $9.9 million to revenues compared with a meager $1.3 million in the prior year period. The company is increasing its investment in land and lots in response to the rising housing demand.

Financial Services    

D.R. Horton’s Financial Services segment generates revenue from originating and selling mortgages and payments for title insurance agency and closing services. In first quarter 2013, Financial Services revenue was $41.9 million, up from $21 million in the prior-year quarter.

However, the company does not add the revenue from this segment to its total sales. Instead, the operating income generated by the segment is clubbed with the operating income from the homebuilding segment to derive the consolidated operating income of the company.

Gross profit on home sales was $230.5 million versus $148.7 million in the prior-year quarter. Homebuilding selling, general and administrative (SG&A) expenses increased 18.3% to $140.8 million in the quarter.

The company witnessed highest pre-tax income since 2007 to $107.9 million in the first quarter of fiscal 2013, up 270% year over year.

Outlook

The company is optimistic about the upcoming quarters in fiscal 2013. The company is well positioned with its homes under constructions, investments in land & finished lots, strong balance sheet and liquidity.

We appreciate the company’s strong results in the first quarter of fiscal 2013. The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. D.R. Horton has been witnessing significant growth in both volumes and selling prices.

Moreover, new home orders, backlogs and homes delivered have all increased in double digit percentages in fiscal 2012 and now in the first quarter of fiscal 2013. D.R. Horton’s homes in inventory have also been increasing. Moreover, the company is leveraging fixed costs while also increasing production due to stronger demand.

D.R. Horton carries a Zacks Rank #5 (Strong Sell). However, given the solid results in the current quarter, we cannot rule out an upgrade in the near future.

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Meritage Homes Corporation (MTH - Snapshot Report), Earnings ESP of +4.76% and a Zacks Rank #1 (Strong Buy).

MDC Holdings Inc. (MDC - Snapshot Report), Earnings ESP of +11.63% and a Zacks Rank #1 (Strong Buy).

Ryland Group Inc. (RYL - Snapshot Report), Earnings ESP of +6.00% and a Zacks Rank #2 (Buy).

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