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D.R. Horton Inc’s (DHI - Analyst Report) adjusted net earnings of 32 cents per share in the second quarter of fiscal 2013 handsomely beat the Zacks Consensus Estimate of 20 cents by 60% and the year-ago earnings of 13 cents by 146.2%. The earnings upsurge was driven by both sales and margin improvement in the Homebuilding and Financial Services segments.

Total revenues of $1.80 billion surpassed the Zacks Consensus Estimate of $1.23 billion by 46.3%. Reported revenues climbed 50.0% year over year, driven by better pricing power and volume growth amid improved market conditions. All the operating regions of the company reported strong sales growth.

Quarter in Detail

Homebuilding revenues of $1.39 billion climbed 48.7% year over year, on the back of strong home sales. Home sales increased 47.3% year over year to $1.37 billion driven by strong growth in net sales orders and selling prices as the company witnessed broad-based improvement across all markets.

On the other hand, land sales contributed $21.7 million to revenues, much higher than $5.0 million in the prior-year quarter owing to frequent land purchases made by the company.  

Net sales orders in the second quarter totaled 7,879 homes, up 34% from the prior-year quarter, bolstered by the increased demand during the spring selling season. The value of net orders grew 52% to $2.0 billion driven by increased volumes and average sales prices.   

Home closings were up 33.0% to 5,643 homes in the reported quarter compared with 4,240 homes in the year-ago quarter.

The quarter-end sales order backlog rose 54% to 9,553 homes from 6,189 homes at the end of the second quarter of fiscal 2012. The backlog grew 76% amounting to $2.4 billion. Sales order backlog represents homes under contract but not yet closed at the end of a certain period.   

Gross profit on home sales was $278.8 million, up 70.6% year over year. Selling, general & administrative (SG&A) expenses were $155.1 million, up 21.6% from the prior-year quarter.

Consolidated pre-tax income was $142.1 million in the quarter, up 236% year over year. Consolidated pre-tax margins stood at 9.9%, reflecting an improvement of 550 basis points year over year, driven by significant improvement in both the segments. Improved market conditions, strategic initiatives resulting in improved profitability, and efficient inventory management boosted pre-tax income.

Fiscal 2013 Outlook

If market conditions remain stable, management expects the company’s profitability to increase in 2013 and thereafter. With increase in demand for new homes, the company has been able to increase prices and create a robust inventory. The company had 15,800 homes and 175,000 finished land lots in its inventory at the end of the second quarter of 2013, which position it well to capitalize on the increased demand.

D. R. Horton currently carries a Zacks Rank #1 (Strong Buy).   

Other stocks in the homebuilding sector that are performing well and deserve a mention include PulteGroup Inc. (PHM - Analyst Report), Ryland Group Inc. (RYL - Snapshot Report) and KB Home (KBH - Analyst Report). While Ryland carry a Zacks Rank #1 (Strong Buy), PulteGroup and KB Home carry a Zacks Rank #2 (Buy).
 

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