Thursday, April 19, 2007

DR Horton's earnings drop 85%

From Reuter's:

D.R. Horton Inc. (NYSE:DHI - News), the largest U.S. home builder, said on Thursday quarterly earnings fell 85 percent, in part due to charges related to the lower value of land.


For the fiscal second quarter that ended March 31, D.R. Horton earned $51.7 million, or 16 cents per share, down from $352.8 million, or $1.11 per share, a year earlier.

The results included charges totaling $81.2 million, or 16 cents per share for land options forfeited and for the lower value of inventory of land and houses it owns.

"We believe that there will be continued softness in '08, and I would expect that we'll continue to adjust our inventories downward in the first two quarters of '08," Tomnitz said.

About 80 percent of the impairment charges were related to California projects, particularly in Sacramento. Horton, based in Fort Worth Texas, said it has begun to aggressively cut prices in California.

Excluding the charges, the earnings were 32 cents per share, short of the 36 cents that was the average of analysts' forecasts, according to Reuters Estimates.

A 7 percent reduction in the average selling price of a home and added incentives hurt gross margins before the charges. The margins fell to 17.7 percent, down 7.8 percentage points from the previous year and 0.9 percentage points from the prior quarter.

There is nothing good in this report.

1.) Notice that land values are dropping.

2.) The company is "aggressively cutting prices." That will hurt profits and margins going forward.

3.) The company is using incentives aggressively. This hurts in several ways: it further hits profits and margins and it means home prices are in fact lower than stated.

4.) The company is now saying 2008 will be soft. That means housing problems will be with us for longer than we would like.