D.R. Horton Sticks With Caution

Updated from 9:22 a.m. EST

D.R. Horton(DHI Quote) closed more home sales than expected in the fourth quarter, helping the homebuilder beat earnings estimates even as profits fell 51%.

Investors bid up the company's shares, but the country's largest homebuilder said that the housing market still may see further deterioriation and signaled more challenging times ahead.

For the quarter ended Sept. 30, Horton earned $277.7 million, or 88 cents a share, down from $563.8 million, or $1.77 a share, a year earlier. Analysts, on average, expected EPS of 69 cents, according to Thomson First Call.

Revenue fell 4% to $4.8 billion, but beat analysts' mean estimate of $3.93 billion. The main driver of the beat was higher-than-expected home closings of 17,261 units, compared with the company's guidance that pointed to about 14,162 closings, said Bank of America analyst Daniel Oppenheim in a research note Tuesday.

"We think investors are likely to focus on the upside to the quarter based on the higher closings," wrote Oppenheim, who rates the stock neutral. "However, the higher closings result in a lower backlog as the company heads into fiscal '07, which may be a challenge given the continued weakness in order trends."

Horton's orders in the quarter fell 25% to 10,430 units. The company's backlog of homes sold but not yet delivered was 18,125 homes, or a dollar value of $5.2 billion, compared with 19,244 homes, or $5.8 billion, a year earlier.