DR Horton (DHI) led home building stocks higher, rising 5.43% as of 1 p.m. New York time, after showing a 31% jump in net income in earnings reported this morning before the market opened.
The company also guided Wall Street to expect a strong selling season this spring. The company’s optimism going forward got support from a report on existing home sales today that showed the supply of already built homes falling to a 17-year low.
The results from DR Horton have spread to other home builders. For example, Lennar (LEN) is up 5.70% today. And to the stock market as a whole, which sees strength in home sales as an indication that consumers have money in their pockets and are willing to spend.
I’d point out that there is company specific good news in DR Horton’s report. Shares of home builders have lagged the market as high land and labor costs have compressed gross margins. DR Horton bucked that trend, to a degree, as gross margins fell just 10 basis points to 19.8%. The company’s SG&A costs hit a new low, down 70 basis points to 9.5% of sales. Land costs did climb strongly–rising 9%–but construction materials costs–sticks and brick– rose by just 2%, a smaller advance than in recent quarters. The company forecast that gross margins going forward would hover near 20%.
The Standard & Poor’s 500 stock index finished the day up 0.66% to 2280.