April 26, 2018 / 10:58 AM / a month ago

UPDATE 3-Homebuilder D.R. Horton tops profit estimates, sees strong demand

(Adds details from conference call, analyst comment)

By Arunima Banerjee

April 26 (Reuters) - D.R. Horton Inc’s quarterly profit topped Wall Street estimates for the sixth straight quarter on Thursday and the homebuilder remained upbeat on housing demand even as borrowing costs inch up for buyers.

Orders, an indicator of future revenue for homebuilders, rose about 13 percent, also coming in above analysts’ estimates although the growth was the slowest in three quarters.

While there have been concerns that rising mortgage and interest rates will slow down the industry, data on Tuesday showed new single family homes rose more than expected in March and consumer confidence rebounded in April.

Homebuilders, including D.R.Horton’s rivals Lennar Corp hand PulteGroup Inc, have said that rate increases have not hurt demand so far.

“Slight increase in rates that we’ve seen are really fueling demand. I see a long sustained housing market,” Chief Executive Officer David Auld said, adding that the spring selling season was off to a strong start.

The Texas-based company also raised the low end of its full-year forecasts for revenue, home sales and gross margins.

“A potential caveat is that when long-term interest rates rise high enough, this could curb demand for new mortgages,” Edward Jones analyst Robin Diedrich wrote.

An increase in lumber as well as land and labor costs is also a concern - a prolonged squeeze on profit margins is forcing homebuilders to increase home prices, in turn dampening affordability.

“Affordability in housing is just going to become more and more difficult to maintain,” Auld said, adding that he did not expect costs related to land, labor and raw materials to come down in the industry.

The company raised the low end of its full-year revenue forecast to $15.9 billion from $15.5 billion, while maintaining the top end at $16.3 billion.

It expects to sell 51,500 to 52,500 homes in the year ending September 2018, compared with its previous forecast of 50,500 to 52,500. It forecast gross margins of around 20.5 percent to 21 percent, raising the low-end from 20 percent.

The homebuilder, which completed the purchase of land and lot developer Forestar Group Inc last year, said it sold 12,281 homes in the quarter ended March 31, at an average price of $299,000, up 1 percent from a year earlier.

The company posted a profit of 91 cents per share, beating the average estimate of 85 cents, according to Thomson Reuters I/B/E/S, while revenue of $3.79 billion edged past the estimate of $3.76 billion.

The company’s shares were up 0.5 percent by midday. (Reporting by Arunima Banerjee in Bengaluru Editing by Saumyadeb Chakrabarty)

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