D.R. Horton Beats on Q2 Earnings, Sales - Analyst Blog

D.R. Horton Inc.'s DHI second-quarter fiscal 2014 results surpassed the Zacks Consensus Estimate for both revenues and earnings due to improved market conditions.

Adjusted earnings of 38 cents per share in the second quarter of fiscal 2014 beat the Zacks Consensus Estimate of 34 cents by 11.8%. Earnings grew 18.8% year over year driven by improved homebuilding revenues and strong margin expansion.

Revenues

Homebuilding revenues of $1.70 billion climbed 22.3% year over year and surpassed the Zacks Consensus Estimate of $1.61 billion by 5.6%.

Home sales increased 22.6% year over year to $1.68 billion due to higher closings and pricing gains. Home sales revenues increased in five out of the six regions. Home closings increased 9.8% to 6,194 homes in the reported quarter. The upside was driven by growth in all the regions, except the Midwest, Southwest and the West. Average sales price ASP rose 10% to $278,900, owing to increased pricing in most of the markets.

Land sales contributed $16.6 million to revenues, lower than $21.7 million in the prior-year quarter.

Net sales orders rose 9% in the second quarter to 8,569 homes attributable to better housing market conditions across most markets. Orders increased in the East, Southeast West, and South Central regions but continued to decline in the Midwest and Southwest. The value of net orders grew 20% to $2.4 billion. The company also witnessed sequential improvement in orders.

D.R. Horton reported solid order growth in the second quarter of fiscal 2014 whereas other homebuilders like PulteGroup Inc. PHM, NVR, Inc. NVR and Meritage Homes Corp. MTH witnessed a decline in orders in their recently reported first quarter results.

The quarter-end sales order backlog rose 5% to 10,059 homes. Backlog value grew 18% to $2.8 billion. Sales order backlog represents homes under contract but not yet closed at the end of a certain period. Backlog rose in West, East, and South Central regions but declined in Southwest, Southeast and Midwest regions.

Margins Going Strong

Gross profit on home sales was $377.2 million, up around 35.3% year over year. Gross margin on home sales expanded 210 basis points (bps) year over year to 22.5% driven largely by improved market conditions, which led to higher ASPs.

Selling, general and administrative expenses were $187.9 million, up 21.1% from the prior-year quarter. Consolidated pre-tax income was $201.9 million in the quarter, up 42% year over year. Consolidated pre-tax margin stood at 11.6%, reflecting an improvement of 170 bps year over year.

Balance Sheet

D.R. Horton's homebuilding cash, cash equivalents and marketable securities totaled $930.8 million as of Mar 31, 2014, compared with $801.1 million as of Dec 31, 2013.

D.R. Horton carries a Zacks Rank #3 (Hold).