D.R. Horton Loss Narrows in Fiscal Q4

By Alex Veiga
|  Friday, Nov 12, 2010  |  Updated 2:33 PM CDT
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D.R. Horton Loss Narrows in Fiscal Q4

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Why, homebuilders argue, should the industry that triggered the recession not get some government assistance to help right the faltering economy?

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Homebuilder D.R. Horton Inc. on Friday projected weaker sales in fiscal 2011 and said it doesn't anticipate a significant bump in sales next spring, traditionally the peak season for home sales.

The dour forecast reflects industry concern that a housing recovery now hinges less on affordability and interest rates than on the course of the U.S. economy and prospects for job growth.

"It's hard to sell a home to an unemployed person," said Donald Tomnitz, D.R. Horton's president and chief executive.

The Fort Worth, Texas, homebuilder reported Friday that its loss narrowed in its fiscal fourth quarter as the homebuilder took fewer writedowns on the value of its properties.

But its revenue slid 9 percent as the company sold fewer homes in the quarter, and new orders dropped 21 percent.

Like other builders, Horton said the housing market became even more challenging after federal tax credits for homebuyers expired in April. Absent the government incentives -- and despite mortgage rates remaining at near-historic lows -- many homebuyers are opting to stay on the sidelines, put off by high unemployment, tight credit and uncertainty about home prices.

Horton faced a tough comparison to the prior-year quarter's orders, which rose 26 percent due to the effect of an earlier round of homebuyer tax credits.

Of late, demand also has slowed in line with traditional seasonal weakness in the fall, the builder said.

"Based on current sales demand and the fact that the tax credits were supporting sales demand last year, we expect sales in the next two quarters to be lower than last year," Tomnitz said.

Still, management said it expects the company to be profitable in fiscal 2011.

Shares fell 75 cents, or 6 percent, to $11.42 in afternoon trading.

The expiration of the tax credit has weighed heavily on Horton, as first-time homebuyers account for more than half of its business.

Home sales were the worst in decades this summer. In the midst of that decline in demand, large homebuilders have reported sharp annual declines in new home orders for the July-September quarter.

Among other homebuilders, PulteGroup Inc. recently reported its new home orders slid 12 percent from a year ago and roughly 15 percent since the second quarter. Builder Meritage Homes Corp. said orders were down 36 percent from a year ago, while Ryland Group Inc. reported orders were down 37 percent.

D.R. Horton said it lost $8.9 million, or 3 cents per share, in the three months ended Sept. 30. That compares with a loss of $234.9 million, or 74 cents a share, in the prior-year period.

The results included $30.8 million in charges for inventory impairments and land option cost write-offs. The year-earlier results included $192.6 million in similar charges.

Revenue dropped to $925.7 million from $1.01 billion.

Analysts polled by Thomson Reuters had expected, on average, a loss of 4 cents a share on revenue of $854 million.

Horton's new orders in the fourth quarter totaled 3,979 homes, for a total value of $817.5 million, down from 5,008 homes, valued at $1.0 billion, a year earlier.

Despite flagging demand, Horton is hoping to take market share from rivals in states such as Texas, Florida and Georgia by opening new communities and adjusting prices and the types of homes it offers, if necessary.

The builder's active selling communities rose 6 percent from the third quarter, while the average sales price on new orders was essentially flat year over year at $205,500.

For the full fiscal year, the company's results were boosted by the homebuyer tax credit. It earned $245.1 million, or 77 cents per share, compared with a loss of $549.8 million, or $1.73 per share, in fiscal 2009.

Revenue jumped 20 percent to $4.31 billion.

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