D.R. Horton Inc, the largest publicly traded homebuilder in the United States, reported stronger than-expected-earnings and a third straight quarterly jump in new home orders as the company continues to gain market share.
The company - which tends to focus on first-time home buyers - said the robust sales pace has continued through the first half of April.
The company also said it expects stronger closings and profitability in the second half of their fiscal year, which ends in September, helped by the fact that it is selling larger homes to customers that are looking to upgrade their current quarters.
"Someone flipped the switch on our buyers," said Chief Executive Donald Tomnitz on Monday's earnings conference call. Springtime for homebuilders is the equivalent of Christmas for retailers - prime selling season - and orders are closely tracked as a major clue as to the health of the housing market.
Horton's orders jumped 19 percent to 5,899 homes for the quarter ended March 31, a sharp contrast to the 23 percent decline in the year-ago period.
The cancellation rate during the quarter was 22 percent - close to its pre-downturn rate, the company said, indicating that fewer prospective buyers are backing out of sales and the new home market may be stabilizing.
"I think this will probably be as good as it gets from the builders," said Stephen East, an analyst with ISI Group. "Virtually every metric we looked at was solid."
In March, Lennar Corp, the third-largest U.S. homebuilder, also reported a sharp rise in new orders.
D.R. Horton's results come amid a string of recent data that has provided mixed signals about what has been a choppy, stop-and-go housing recovery.
Data on Thursday showed U.S. home resales fell in March but the supply of properties tightened and prices edged higher.
Consumers remain skittish as they face a shaky labor market, high gas prices and a volatile U.S. economy.
Johns Burns Real Estate consultants finds it is now cheaper to own than to rent in many U.S. markets, with mortgage rates near record lows and inventories near record highs. Still, studies show many first-time homebuyers are saddled with student debt and a big chunk of their paychecks are gobbled up by rent, so they are shut out of homebuying altogether.
CUSTOMER MIX CHANGING
On Monday's D.R. Horton earnings conference call, Chief Executive Donald Tomnitz pointed out that more of its home sales are drifting away from the company's traditional first-time home buyer towards the move-up buyer.
More than half of Horton's customers are first-time buyers, but the company said it is increasingly selling to clients looking to trade up from their current home, which pushed up the company's average sales price 7 percent to $222,700.
D.R. Horton's homes range from $90,000 starter townhouses to $600,000 custom Colonials.
Tomnitz pointed out that his company's results are not indicative of a robust housing recovery but rather of a market-share grab.
He also said that his sales agents are reporting that an increasing number of buyers are former homeowners who lost their homes to short sales and foreclosures and who are now coming back into the market.
The company may earn enough money this fiscal year to realize gains from deferred tax assets.
D.R. Horton is still working with first-time buyers - it has opened a Homebuying Club with credit counselors and financial planners to help debtors clean up their family balance sheets so they can one day own a D.R. Horton home.
Horton's net income rose to $40.6 million, or 13 cents per share, from $27.8 million, or 9 cents per share, a year ago.
Analysts expected earnings of 4 cents per share, according to Thomson Reuters I/B/E/S.
In the quarter ended December 31, it topped expectations with net income of 9 cents versus a mean estimate of net income of 5 cents per share.
The Fort Worth, Texas-based company's shares fell 2.7 percent to $14.96 in mid-day trading as the broader U.S. stock market fell.
Reported by Reuters (04/23/2012)