Homebuilder D.R. Horton 1Q Profit Plummets, but Shares Climb As It Beats Expectations

Discussion in 'Wall St. News' started by S2007S, Jan 23, 2007.

  1. S2007S



    FORT WORTH, Texas (AP) -- D.R. Horton Inc., the nation's largest homebuilder by deliveries, said Tuesday that earnings fell 64 percent in the last three months of 2006 as it wrote down the value of assets and forfeited land deposits and took fewer sales orders.

    But the results still beat Wall Street's expectations, and Horton shares jumped $1.25, or 4.6 percent, to $28.38 in afternoon trading on the New York Stock Exchange.

    Horton's stock may also have benefited from a Goldman Sachs report on the homebuilding sector. Goldman said the housing market is "very troubling" with high cancellation rates and declining prices but said that the "worst may be past."

    Goldman upgraded Horton, Toll Brothers Inc. and MDC Holdings Inc. to "buy," saying they were lower-risk companies in the group, and raised Ryland Group Inc. to "neutral." It downgraded others, including Lennar Corp. and Hovnanian Enterprises Inc.

    Horton reported that net income in the quarter ended Dec. 31 plummeted to $109.7 million, or 35 cents per share, from $310.1 million, or 98 cents per share, a year earlier.

    The latest quarter included charges of $77.5 million, or 15 cents per share, to cover inventory write-downs and forfeited deposits on land options.

    Analysts expected the company to earn 33 cents per share in the most-recent quarter, according to a survey by Thomson Financial.

    Homebuilding revenue edged higher to $2.84 billion, as Fort Worth-based Horton closed on 10,202 homes, up from 9,891 last year.

    Sales orders fell sharply to 8,771 homes worth $2.3 billion from 11,463 worth $3.2 billion a year earlier, a further sign that the housing market remains mired in a slump.

    Horton's cancellation rate in the Dec. 31 quarter was 33 percent, an improvement from 40 percent in the previous quarter but higher than the usual rate of 16 to 20 percent.

    Horton used incentives to close on more homes than it did a year earlier. The company did not provide guidance for its new fiscal year, which began in October, but said conditions in the housing sector, which has been in a slump the past year, "remain challenging."

    Backlog under contract as of Dec. 31 totaled 16,694 homes valued at $4.7 billion versus 20,816 homes valued at $6.2 billion the year before.

    Horton, like many large builders, is scrambling to reduce inventory to staunch the sharp decline in prices since early 2006. The company cut its lots owned or controlled to 297,000, down 25 percent from March 2006, while homes under construction fell 35 percent to 26,000 from the June peak of 40,000.
  2. S2007S


    favorite line...

    . Goldman said the housing market is "very troubling" with high cancellation rates and declining prices "BUT" said that the "worst may be past."
  3. Mvic


    You have got to love this market, tech stocks come out with record earnings and plummet and the hommies come out with as bad earnings as a short could wish for and they ramp. Are we in the twilight zone yet!
  4. Twilight Zone is right.

    Homebuilders and airlines have had a tear.


    Who would want anything to do with an airline???

    Homebuilders just wrote off 2 billion in forfeited deposits for land they no longer want, and their cancellation rates are outpacing their new contract sales rates....

    Twilight Zone is right.
  5. S2007S


    Dont worry, everyone is saying the worst is most likely over, haha


  6. i've been long tech, getting butchered (especially on apple). a few days ago I saw this writing on the wall when nasdaq must have been down 25-30pts and my KBH short from months back was actually -up-. took that short off and realized my money is probably better doing other things.

    the fact that the homebuilders are actually levitating right now looks to me a great signal that buying into weakness on tech is a good idea. if homebuilders crash, that means the market as a whole views the -entire- economy as doomed. But if they're solid, then no worries, buy index futures galore !!!

    I defend my nasdaq long with the point here: While I'm worried to see reduced guidance and some seasonal weakness, I hold tight to the belief that the market prices in earnings growth in terms of *years*, not *quarters*.

    Homebuilders will make a good short as soon as jobs #s fall of a cliff. That, or perhaps for NEXT quarter's earnings. Until then, I've given up as well.
  7. Mvic


    Did anyone else catch that article in the FT the other day about how leveraged the financial world is these days. Apparently the Heggies are running 2+:1 and they are getting their money from Fund of funds who are running at 3:1 who are leveraged some ridiculous amount of some eurodollar derivative where by the whole system is based on $20K margin for each 1M of these Euro$s. EM market bonds are trading through corporates, a 1st as far as I know and the spread on corporates is so thin that some respected bond funds are getting out of the high yield area altogether as they don't feel there is enough of risk premium built in anymore to justify the risk. No risk, then why are subprimes going under like flies? In the mean time long rates are rising and US productivity is lowest in how long?

    Yes, I know the "Bernanke put" right, the Fed will save the day if things start looking bad. Hmm what happened to Japan when they poured some trillions in to their banking system after their collapse, the banks wouldn't pass the money through in loans. They were so risk averse due to falling asset prices that they would not make loans killing any attempt by the BOJ to reainflate.

    The point is that IF things do get bad, and the odds given the precarious nature of EMs, the collapse of commodity prices, and the extension of the US and European consumer, and the leverage employed around the world have to be at least around 50% (though it isn't showing up in risk premium anywhere) then they will be really bad and the Fed will have a hard time getting banks to lend money when asset prices are falling hard and companies debt ratings decreasing. You will be lucky to get a mortgage approved with 50% down and a 800 Fico, and that's if you can get the underwriters to buy your appraisal!

    Just be sure to have the cash ready for when it will be king.

    By the way, for any gold bugs, gold will get hit as well initially but then as faber says will be a fantastic investment as the central banks all try their damndest to reflate the global economy. They are worried about this which is why they are all trying to drain some liquidity (all except the BOJ) from the system slowly without killing the goose, but will it be enough and in time to avert a collapse of the house of cards?

    If it goes, by the very nature of how connected everything is by the layers upon layers of leverage it will all go very quickly.

    If we can grow our way out of while reducing liquidity (globally speaking) then we could enjoy many years of stellar growth but if not we are in for a rough ride.

    I recall that Enron almost took out GE capital. Think that multiplied many times, we are not talking about LTCM here.

    Watch for the expansion of credit spreads as that could be an important tell that risk premium is being priced back in to the markets. Yes I agree, jobs too.

    (twighlight zone theme music to play here)

    Panic attack over :D : back to your regular buy the no risk dip programming.
  8. S2007S


    very interesting.....I really dont know how long this can last. Global Liquidity at RECORD levels and investors pushing as far as they can while risk is just being stretched beyond limitations.
  9. I think most of us have held that opinion for a while... but it keeps lasting and keeps going, and keeps us all surprised.

    Mvic, Japan's failure was the failure of the banks to pass along the money, and the failure of the japanese people to spend. That's more of a cultural thing. I doubt the US would have the same problem. I suspect that some form of legislation could avoid that problem.

    On a related note, I too closed out my NFI puts the other day for a tasty 400% profit, thank you. I suspect that some of the subprimes will either be merged into larger entities to weather the financial storms heading their way or that revenues may be better than expected and that there is simply too much short interest at this time to allow for further downside.

    Would love to re-enter from higher levels, however!