D.R. Horton Expects Profit
For Third Quarter to Drop
by Michael Corkery
From The Wall Street Journal Online
July 18, 2006
Potentially breaking a streak of 114 consecutive quarters of year-over-year earnings growth, D.R. Horton Inc., one of the nation's largest home builders, said it expects fiscal third-quarter profit to be lower compared with a year ago.
The Fort Worth, Texas, company announced the earnings warning late yesterday when it issued its latest report on sales orders. In that report, the company said it had 14,316 home orders in the third quarter, down from 14,980 a year earlier. D.R. Horton said flagging demand from buyers, rising inventories and higher cancellations on new homes are hurting sales.
The company also said that due to market conditions, it expects earnings for its fiscal third quarter ended June 30 to come in at 93 cents a share, compared with a profit of $1.17 a share a year earlier. The company said third-quarter earnings will reflect about 11 cents a share in "write-offs of earnest money and pre-acquisition costs related to land option contracts."
The forecast was released after 4 p.m. New York Stock Exchange composite trading. In late trading, D.R. Horton's shares fell 9%, or $2.06, to $20.80. D.R. Horton will report full third-quarter results July 20.
While most home builders are suffering from the housing slowdown, D.R. Horton's troubles are significant because the builder has been able to weather previous downturns with ease. Many analysts on Wall Street have been bullish on the company's ability to continue to increase profits even in a slowing market.
"Is the sky falling? Absolutely not," D.R. Horton Chief Executive Officer Donald J. Tomnitz said in an interview. "Is it a more competitive market? Absolutely yes."
Mr. Tomnitz said his company has often used incentives to drive sales, but the company is reducing those incentives in some markets because they aren't as effective as he would like them to be. Mr. Tomnitz said that in some markets, the company is finding it better to reduce incentives, sell "slightly fewer homes" and preserve its profit margin.
The company cut its fiscal year 2006 earnings projection to $3.65 "or greater" per share. That is down from an earlier forecast of $5.25 to $5.35 a share, Mr. Tomnitz said. Still, he said that "based on $3.65, that will be the second most profitable year of the company."
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