D.R. Horton Posts Steep Loss

Analysts still can't figure out the homebuilder stocks. D.R. Horton DHI, the country's largest homebuilder, reported a loss Tuesday that was 10 times as large as Wall Street expected.

Horton's ugly first quarter is the latest of several recent negative housing reports from builders that have been reporting much wider losses than projected.

Fort Worth, Texas-based Horton's fiscal second-quarter loss totaled $1.3 billion, or $4.14 a share, compared with profit of $51.7 million, or 16 cents a share, a year ago. Analysts expected a loss of 39 cents a share, according to Thomson Financial.

The company's new orders fell 25%, a sign that the all-important spring selling season remains a dud for homebuilders. In early trading, Horton fell 1.3% to $15.77, with the stock now trading at 1.2 times book value.

Buying the stock at these levels is a bit loony, since further drops in housing prices will likely lead to more land and inventory impairment charges that erode book value further.

In the latest quarter, Horton booked $834 million of pre-tax land impairment charges. On a slightly positive note, Horton managed to report a homebuilding operating profit of $150 million, excluding the impact from the writedowns. This result stands in contrast to Pulte PHM and Centex CTX, which recently reported operating losses (excluding the large writedowns).

Horton's results were also dragged down by a $714 million valuation allowance charged against its deferred tax assets. Under accounting rules, builders must create such doubtful accounts to reserve against the possibility that losses will continue far into the future and prevent tax write-offs from being used.

It is not clear if analysts were modeling the tax adjustment. By adding back the valuation allowance, it seems Horton would have lost $1.87 a share.