D.R. Horton's Net Profit
Plunges Amid Order Drop
by Mike Barris
From The Wall Street Journal Online
April 20, 2007
Homebuilder D.R. Horton Inc., which last week disclosed a sharp drop in orders for the fiscal second quarter, Thursday said profit tumbled 85% amid the housing-market downturn.
Chairman Donald R. Horton said market conditions in the home-building industry "continue to be challenging in most of our markets as inventory levels of both new and existing homes remain high, and further increases in the use of sales incentives continue to put pressure on profit margins."
The nation's largest home builder by number of units reported net income of $51.7 million, or 16 cents a share, for the latest quarter, compared with $352.8 million, or $1.11 a share, a year earlier.
The latest results included pretax charges of $67.3 million, or 13 cents a share, for inventory impairments and $13.9 million, or three cents a share, for write-offs and costs related to land-option contracts it doesn't intend to pursue.
Analysts had expected the Fort Worth, Texas, builder to post earnings, excluding items, of 27 cents a share in the quarter, according to Thomson Financial.
Home-building revenue for the latest quarter fell 26% to $2.62 billion from $3.53 billion. Revenue from home sales dropped to $2.52 billion from $3.47 billion.
The company's report last week of a 37% drop in second-quarter orders is a bad sign for builders in the midst of the crucial spring home-selling season. D.R. Horton said it had orders for 9,983 homes in the quarter, compared with 15,771 homes a year earlier. The orders were valued at $2.6 billion, down from $4.4 billion a year earlier. Orders fell in all geographic regions, led by California's 59% decline. D.R. Horton said its cancellation rate, which reflects sales orders canceled divided by gross sales orders, was 32%, flat with the prior quarter, but above historic levels.
Thursday, the company said its sales-order backlog of homes under contract at the end of the quarter was 16,885, valued at $4.8 billion, compared to 24,017 homes, valued at $7.1 billion, a year before.
In recent pre-market trading, D.R. Horton's shares were at $22.71, versus Wednesday's close of $23.04.
The housing sector has been struggling with an inventory glut, a surge in cancellations from jittery buyers and a slump in demand. Some builders have warned that rising default and foreclosure rates in the subprime-mortgage sector will exacerbate the housing slump.
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