D.R. Horton profit rises on tax benefit

NEW YORK (Reuters) - D.R. Horton Inc (DHI.N) reported higher-than-expected margins on Friday as the economies of scale associated with being the biggest U.S. homebuilder helped to offset weak home-buying demand.Horton's gross margins of 16.2 percent are helping it make money despite stiff price competition from cut-rate foreclosures and short sales that are depressing housing prices as the downturn nears its fifth anniversary.Margins were down from last year's 18 percent, but still higher than most analysts expected.
Horton, which has operations in 26 states, reported earnings of $27.8 million, or 9 cents per share, for the second quarter ended March 31, up from $11.4 million, or 4 cents per share, a year earlier.
Wall Street analysts had expected a loss of 5 cents per share, according to Thomson Reuters I/B/E/S.
The profit included a tax benefit of $59.2 million because of a favorable ruling from the Internal Revenue Service that allows them to stop paying a certain reserve, spokeswoman Jessica Hansen said.
Without one-time items like the tax ruling, the company would have reported earnings in-line with Wall Street's expectations, wrote Wells Fargo analyst Adam Rudiger.Second-quarter revenue fell 18 percent to $733 million, and orders declined by 23 percent to 4,943 homes. In 2005, a peak year for homebuilding, the company sold more than 21,000 homes in the Southwest alone.
Orders are a leading indicator for builders, which do not recognize revenue until they close on a home.
LONG SLOG, EASIER COMPS
U.S. single-family home prices fell for the eighth straight month in February, according to the S&P/Case-Shiller composite index, which showed a year-over-year decline of 3.3 percent for 20 cities.
Horton says the road to recovery will be a long and tough slog.
"The homebuilding industry over the next two to three years will be very similar to what it has been for this year, with the potential for slight improvements but not significant improvements," said Chief Executive Officer Don Tomnitz on a conference call with analysts.
Investors give Horton's management a premium for being more realistic and accurate in its assessment of the duration and severity of the downturn, said FBN Securities analyst Joel Locker.
The company's business model focuses on lower-end homes for first-time homebuyers, which means it benefited more than many of its peers from the federal home buyer tax credits that expired a year ago.
As a result, Horton faced difficult comparisons that will ease in the second half of the year. In its second quarter last year, orders rose 55 percent.
The easing of those comparisons in the second half of the year sets the company up for an improved perception of its prospects that should translate to gains in share price, said ITG analyst Demir Gjokaj.
"This is going to be the last quarter for Horton for truly bad trends" in revenue and order declines, he said. "From now on, it'll be slow growth."
Shares of Horton were up 2.9 percent at $12.45 during morning trading on the New York Stock Exchange.
Source http://www.reuters.com/