Homebuilder D.R. Horton Inc. surprised Wall Street on Friday, reporting its profit more than doubled in the first three months of the year thanks to a large tax gain.
What wasn't surprising was the builder saying its new home orders and closings fell sharply versus the same quarter last year, reflecting the absence of federal tax credits that helped boost home sales a year ago.
New home orders fell 23 percent, while closings fell 17 percent. The trends echoed declines reported this week by other homebuilders that failed to eclipse their year-ago home-order numbers for the January-March period.
D.R. Horton and other builders benefited last spring from federal tax credits that lifted sales industry wide. That tax incentive expired at the end of last April, however, and new home sales ended up dropping last year to the lowest level on records going back nearly a half century.
New home sales rose 11 percent in March from February to a seasonally adjusted rate of 300,000 homes, the first monthly increase since December. That sales pace is still well below what economists consider healthy, however.
Donald Tomnitz, D.R. Horton's vice chairman, president and CEO, said growth in home sales won't recover unless the economy, the job market and consumer confidence improve significantly _ something he doesn't see happening anytime soon.
"As we look forward over the next two to three years, we don't expect a significant improvement in the demand, because clearly one of the things that drives demand in our business the most is job growth," Tomnitz said. "And we're not seeing the kind of job growth that I think will increase our sales dramatically."
The company expects the impact of the tax credit will make it difficult to beat its prior-year new home order tally in the fiscal third quarter. However, D.R. Horton ended its fiscal second quarter with a backlog of homes that should translate into higher home closings and pretax profit in the second half of the year, Tomnitz said.
Homebuilders have been hoping for a sales lift during this year's spring home-selling season, traditionally a peak time for home sales. But many would-be homebuyers remain deterred by high unemployment, strict lending standards and concerns that home values could drop further.
New home sales are a bellwether for the housing market and the economy. As demand grows, more homes are built. And each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, by some estimates.
D.R. Horton reported its net income rose to $27.8 million, or 9 cents per share, for the period ended March 31, up from $11.4 million, or 4 cents per share, a year ago.
The results included a $59.2 million tax benefit offset in part by charges for inventory and land option cost writeoffs.
Analysts surveyed by FactSet expected a loss of 5 cents per share excluding unusual items.
Revenue fell 18 percent to $733.1 million from $896.8 million, missing Wall Street's estimate of $758.4 million.
Closings fell to 3,516 homes from 4,260 homes, while net sales orders dropped to 4,943 homes from 6,438 homes. The quarter's cancellation rate was 25 percent.
D.R. Horton boosted its inventory by 1,400 homes during the quarter to support increased demand for new homes during the spring selling season.
Like other builders, D.R. Horton has been opening more new home communities. It ended the quarter with 30 percent more open communities than it had a year ago.
The builder's backlog as of March 31 stood at 5,281 homes.
The company also declared a quarterly dividend of 3.75 cents per share. The dividend will be paid on May 24 to shareholders of record on May 12.
D.R. Horton, based in Fort Worth, Texas, has operations in 72 markets in 26 states.
Its shares added 40 cents, or 3.3 percent, to $12.50 in afternoon trading.