D.R. Horton Slides on Disappointing Loss

(D.R. Horton earnings report updated with analyst commentary.)

FORT WORTH, Texas ( TheStreet) -- D.R. Horton ( DHI) shares continued to slide Friday after the U.S. homebuilder posted wider-than-expected fiscal-first quarter losses as new-home orders fell, cancellations rose and its backlog of homes under contract shrank.

DR Horton

D.R. Horton said Thursday it booked a net loss of $20.4 million, or 6 cents loss per share, a far steeper loss than the $2.8 million, or 3-cent loss-per-share, analysts had expected.

"We expected coming into this quarter that the road ahead would be tougher than the road behind for DHI given that its first-time buyer focus and spec strategy was more or less tailor made for the tax-credit supported environment of last year," noted Stifel Nicolaus analyst Michael Widner. "With that crutch pulled out we anticipated a bit of slippage."

D.R. Horton shares tumbled 3.4% to trade around $12.37 Friday morning after closing 3.2% lower Friday amid heavy trading.

The analyst added that "we find CEO Don Tomnitz' candor surrounding the sector's challenges refreshing, honest, and realistic," commenting on what he heard in D.R. Horton's earning conference call with investors. "For valuations we also think it's nice to have Don's commentary out of the way early in reporting so that glass-half-full peers can talk valuations higher on their views of what might be as opposed to what is."

"Nothing in results changed our view that the company is one of the strongest and most disciplined competitors in the sector," Widner concluded. We like the land-lighter model and the incessant focus on profitability and growth. In a capital intense commodity sector we see this as a great approach for shareholders. We're just lukewarm on the valuation given the housing environment."

Widner maintained a hold rating on D.R. Horton shares and said he sees DHI shares "being in the rough vicinity of fair value."

Results included $8.4 million in pretax charges related to the cost of sales for inventory impairments and land option cost write-offs, the company said.

In the year-earlier period, D.R. Horton earned $192 million, or 56 cents per share, including a tax benefit of $149.2 million.

Homebuilding revenue came in at $767 million, down from $1.1 billion in the first fiscal quarter of 2010. The top-line figure also missed the Street's estimates. Analysts had, on average, expected D.R. Horton to book top-line sales of $800.4 million.

Citigroup analyst commented that "we rate DHI as High Risk because of the uncertainty surrounding the ultimate duration and magnitude of the housing market's downturn."

D.R. Horton said home closings totaled 3,637 in the recent quarter, down 34.2% year-over-year from 5,529 home closings.

Net sale orders totaled 3,363, worth $705.6 million, down from year-earlier net sale orders of 4,037, worth $850.1 million.

The builder's cancellation rate, which measures cancelled sales orders divided by gross sales orders, was 28% in the recent quarter, up from 26% a year earlier.

"We are well positioned for the spring selling season, with homes available to meet the seasonal increase in demand, a broad geographic footprint and price points focused on the first-time homebuyer," chairman Donald R. Horton. "While our year-over-year comparisons for net sales orders are very difficult for the next two quarters, we do expect to see an increase from the sales levels we achieved in the December quarter.

Better-than-expected real estate data offered welcome news about the economy this month, but the housing market continues to bounce along the bottom, said Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm.


TheStreet spoke with Brungardt after data released in recent days showed that pending home sales rose 2% in December, new-home sales spiked 17.5% and existing-home sales rebounded 12.3%.

He said the reports showed generally nice data points, especially that the supply of new homes for sale fell below the 7-month mark, but that "housing keeps plodding along toward a slow recovery" facing a number of headwinds.

Brungardt reiterated the usual suspects of headwinds facing the residential real estate market, namely high unemployment, potential buyers' low confidence in the stability of home prices and the large inventory of distressed properties that still need to be cleared.

He doesn't expect the U.S. housing market to recover until 2013, at least.

The homebuilder sector is well off its late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

The SPDR S&P Homebuilders ( XHB), an exchange-traded fund that tracks the homebuilder sector, remains more than 60% off its peak of $46.08 in early 2006. The iShares Dow Jones US Home Construction ( ITB) ETF remains more than 72% off its peak of $50.10 in the spring of 2006.

Elsewhere in homebuilder earnings, NVR ( NVR) and Ryland ( RYL) posted mixed earnings results this week.

NVR topped Wall Street's profit and revenue expectations but its backlog of homes sold but not settled dropped 17% year-over-year to 2,916 units, and on a dollar basis by 11% to $958.3 million. Investors were also disappointed with NVR's word that orders for new homes fell 12% to 1,765 units, and the builder's cancellation rate increased to 18%, from 15%, year-over-year.

Ryland booked a wider-than-expected net loss of $19.1 million, or 43 cents per share.

Ryland said new orders fell 19.9% to 776 units, though the average closing price increased grew 2.5% to $243,000. Homebuilding revenue declined 45.5% to $221.1 million, attributed to a 45.4% drop in closings to 909 units. Results at Ryland's financial services business nearly halved to $227.1 million.

NVR shares were 1.1% lower Friday morning while Ryland lost 1.4%.

Elsewhere in the homebuilder sector, Toll Brothers ( TOL) fell 1.8% on Friday. Toll Brothers surprised investors with a return to year-over-year profitability in its fiscal fourth quarter, and recently said deposits jumped 10% in the second half of November compared with year-earlier results.

Lennar ( LEN) lost 2.3%. Earlier this month, Lennar posted better-than-expected fiscal-fourth quarter earnings but said new-home deliveries were down 12%.

Small-cap builder KB Home ( KBH) bid 2.6% lower on Thursday. KB Home recently posted a surprise quarterly profit and said fewer homes delivered in its recent quarter was partially offset by an increase in the average selling price.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to @miriamsmarket.

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