Tuesday, November 25, 2008

DR Horton swings to $800 million loss

D.R. Horton Inc.'s chief executive said Tuesday he expects this fiscal year to be even more challenging than 2008, which ended with a nearly $800 million quarterly loss on slower home sales and more than $1 billion in charges.

The Fort Worth, Texas-based homebuilder reported a net loss of $799.9 million, or $2.53 a share, compared to a loss of $50.1 million or 16 cents a share, in the year-ago period. Total sales for the quarter were $1.75 billion, down from $3.12 billion in the fourth quarter 2007.

The company sold 6,961 homes in the fourth quarter, down 41 percent from year-ago levels.

Donald Tomnitz, who is also D.R. Horton's president, said the company was working to reduce inventory of homes and land. He called the housing market "dismal" but said, "we are confident in our abilities to deal with the blows the housing market and the economy will send our way."

The builder's fourth quarter revenue plummeted 44 percent, but that still beat analysts' expectations. Analysts polled by Thomson Reuters had forecast a loss of $1.88 a share on revenue of $1.7 billion.

D.R. Horton said the fourth quarter loss reflected a tax benefit of $365.3 million.

The company is just the latest in a string of builders reporting losses in the hundreds of millions of dollars.

To discuss the industry's plight, the High Production Home Builders Council recently visited members of Congress, Tomnitz said, stressing that something needs to be done.

"The only way people are going to buy homes is when they realize ... the value is not going to erode after they purchase the home," Tomnitz said.

One move Tuesday that will provide some relief: the Federal Reserve said it will buy up to $600 billion in mortgage-backed assets. The news immediately caused the trading range to narrow on certain mortgage-related securities - the first step toward lower interest rates.

D.R. Horton's shares jumped 38 percent, or $1.90 a share, to close at $6.90.

Investor enthusiasm may partly be in response to D.R. Horton's cash reserves.

Anna Torma, an analyst with Soleil Securities Group, highlighted the builder's $1.4 billion cash cushion and an expected federal income tax refund of $622 million in December.

D.R. Horton's management "remains focused on cash generation," wrote Torma, who maintained a "Hold" rating and a $9 price target on the stock.

Indeed, the homebuilder slashed its quarterly dividend to 3.75 cents a share from 7.5 cents.

Meanwhile, the company took nearly $1 billion in charges in the fourth quarter, including $364.7 million for owned inventory, $624.2 million for land and lots sold during the quarter and $85.7 million for write-offs of deposits and costs tied to land contracts the company doesn't plan to pursue.

The backlog of homes under contract to be sold as of Sept. 30 fell sharply from the same time last year. D.R. Horton had 5,297 homes worth $1.2 billion under contract at the end of the quarter. It had 10,442 homes valued at $2.7 billion under contract on the same day last year.

For the full fiscal year, D.R. Horton lost $2.63 billion, or $8.34 a share. The homebuilder lost $712.5 million, or $2.27 a share, during the previous fiscal year.

Full-year revenue fell to $6.52 billion from $11.09 billion during the prior year.