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Builder Stocks Jump, But Q1 Reports Mixed

U.S. homebuilders, hit by disappointing housing data earlier this week, rallied Thursday as four builders posted mixed quarterly results dotted with cautious optimism.

D.R. Horton (DHI), PulteGroup (PHM), Ryland Group (RYL) and M/I Homes (MHO) reported earnings before the stock market open Thursday, with D.R. Horton strong across the board as its peers missed views or delivered a blend of positive and negative results.

Those reports came on top of the week's earlier news that sales of both new and existing homes declined in March, as rising prices and low inventories slowed the housing market's recovery.

D.R. Horton, the No. 3 builder by market cap, got an 8% stock price lift Thursday, while M/I Homes jumped 9%, Pulte gained about 2% and Ryland rose about 3%. Other homebuilder stocks moved up by similar percentages, lifting IBD's Building-Residential/Commercial industry group 3%.

First-Time Buyers Appear

At D.R. Horton, which sells many homes under $250,000 to first-time buyers, CEO Donald Tomnitz said on a conference call with analysts that "we are experiencing solid demand and profitability in the heart of our business.

D.R. Horton earned 38 cents a share for its fiscal second quarter, which ended in March. EPS was up from 32 cents the previous year and 4 cents above consensus views.

The company's homebuilding revenue rose 22% to $1.7 billion. The average selling price increased 10% to $278,900, helping to push up the home-sales gross margin by 210 basis points to 22.5%. Orders rose 9% in homes and 20% in value.

Pulte, which ranks second in market cap, logged Q1 earnings of 19 cents a share, down from 21 cents a year earlier and a penny below views. Revenue fell 3% to $1.12 billion, missing estimates for $1.2 billion. Home closings dropped 10.4%, while average selling prices of homes delivered rose 10.5% to $317,000. New orders slid 6%.

"We experienced good demand in the quarter with generally stable to rising prices and gains in absorption paces suggestive of buyers coming back into the market especially in March," Pulte CEO Richard Dugas said on a conference call with analysts. "We'll have to see how demand develops over the remainder of the spring selling season but we're certainly encouraged by what we saw.

Also Thursday, Ryland said that its first-quarter EPS fell 2% from the prior year to 42 cents, missing estimates for 45 cents. It happened even as revenue rose 31% to $489.7 million, topping views for $473.2 million. Closings increased 12.5% to 1,470 units, while the average closing price climbed 18% to $327,000. Orders also advanced.

M/I Homes reported Q1 earnings rose 15% to 23 cents a share, better than expected. Revenue rose 23% to $234.8 million but missed forecasts. New contracts fell 6%.

Wednesday, Meritage Homes (MTH) missed earnings views and reported a dip in orders. NVR (NVR) badly missed views on Monday.

The Commerce Department said Wednesday that sales of new homes declined 14.5% in March to a seasonally adjusted annual rate of 384,000, down from February's revised pace of 449,000. It was the second straight monthly decline and the lowest rate since July 2013.

Builders had hoped that warmer weather in March might bring more activity. But a number of challenges have weighed on the industry, including supply constraints, rising prices and tight lending standards for buyers and builders.

"We believe strict mortgage underwriting standards are a head wind for all our builders," Sterne Agee analyst Jay McCanless said in a research note Thursday.

The median sales price for new homes in March climbed 11.2% from the prior month to $290,000.