April 22, 2015 / 11:41 AM / 4 years ago

UPDATE 2- Homebuilder D.R. Horton forecasts drop in margins, shares fall

* Forecasts Q3 gross margins of 19.5-20 pct vs 20.7 pct year ago

* Expects higher share of lower-margin homes in home sales

* Avg sales price rise 3.7 pct, slowest growth in over 3 years

* Shares fall about 6 pct (Adds analyst comment; updates shares)

By Ankit Ajmera

April 22 (Reuters) - D.R. Horton Inc, the largest U.S. homebuilder, reported its slowest growth in average selling prices in over three years and the company forecast a drop in gross margins for the current quarter as it sells more lower-priced homes.

D.R. Horton said sales in its lower-margin ‘Express’ homes business, which caters mainly to first-time home buyers, are expected to account for as much as 30 percent of home sales in the “foreseeable future” compared with 5 percent in 2014.

The company’s shares fell 6 percent to $26.84 on Wednesday.

“There are some headwinds that face the entire industry in terms of slowing home price appreciation at the same time land costs are appreciating,” Morningstar Inc analyst James Krapfel said.

D.R. Horton said it expected gross margins of 19.5-20.0 percent for the current quarter, down from 20.7 percent a year earlier.

The forecast overshadowed a 30 percent jump in orders, indicating a strong start to the spring selling season, which typically runs April through June and is to homebuilders what holiday season sales are to retailers.

Orders, an indicator of future revenue, rose to 11,135 homes in the second quarter from 8,569 homes, a year earlier.

D.R. Horton’s homebuilding revenue rose to $2.32 billion from $1.68 billion. The company sold 8,243 homes, up 33 percent from a year earlier.

D.R. Horton’s net income rose to $147.9 million, or 40 cents per share, in the quarter ended March 31 from $131 million, or 38 cents per share, a year earlier.

Analysts on average had expected earnings of 38 cents per share and revenue of $2.21 billion, according to Thomson Reuters I/B/E/S.

Up to Tuesday’s close, D.R. Horton’s shares had risen about 13 percent this year, while the Dow Jones U.S. Home Construction index had gained 10 percent. (Additional reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Kirti Pandey)

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