D.R. Horton Narrows Loss, but Clearly Weak

But the homebuilder's cost structure weighs on fiscal third-quarter results.
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D.R. Horton's

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latest quarterly loss was narrower than a year ago, but the results show the difficulties that homebuilders face in trying to return to profit.

Horton, the nation's largest homebuilder, said Tuesday it lost $399 million, or $1.26 a share, in its fiscal third quarter, compared with a loss of $824 million, or $2.62 a share, a year ago.

Damaging results were $330 million of land impairment charges and a $169 million deferred tax asset valuation charge.

But apart from these noncash writedowns, the core results looked very weak.

Closed selling prices for homes fell 11% from a year ago. Adding back the impairment charges, the gross margin on Horton's homebuilding operation was 10%, down from 17% a year earlier (also excluding the charges).

On the positive side, the level of impairments was down 61% from last year's quarter. However, SG&A as a percent of homebuilding revenue spiked to 14%, up from 10% last year.

New orders for homes were down 36% year-over-year. The company's cancellation rate remained high at 39%.

All in all, the results show that Horton, like most homebuilders, continues to lose money on a pretax basis even if you add back the one-time inventory impairment charges.

At this stage, only a spike in revenue will help offset Horton's burdensome cost structure. But with prices for homes still falling and closings and orders down sharply, it's hard to see revenue increasing anytime soon.

Horton's book value per share is now $11.58.