Homebuilder DR Horton Inc. (DHI) on Friday reported a net loss for the fourth quarter that narrowed from last year, helped by fewer charges. Quarterly revenues dropped 42% year-over-year, reflecting lower home sales as market conditions in the homebuilding industry continued to be challenging. However, the company's net sales orders for the quarter increased 26% from last year.
The housing sector is one of the worst-affected by the subprime collapse and the credit crunch. With unemployment levels remaining high and loans becoming hard to come by, house purchases have become fewer. Added to this is the threat from discounted foreclosed homes.
However, declining home prices, historically low interest rates and government stimulus programs, such as the $8,000 federal tax credit and the $10,000 California state tax credit have created unique purchasing opportunities and made it more compelling for homebuyers to enter the market.
The federal tax credit of up to $8,000 for first-time homebuyers was scheduled to end on December 1, 2009. Homebuilders were pressuring lawmakers to extend the deadline, as it has supported home sales. The federal government has now extended the federal tax credit to run through July 1, 2010, and expanded the scheme to include people with higher incomes and some who want to trade up into new homes. As a result, DR Horton and other builders have seen new home orders improve this year.
Fourth-Quarter Results
The company's net loss for the fourth quarter narrowed to $231.9 million or $0.73 per share, from $799.9 million or $2.53 per share in the year-ago quarter.
The latest quarter's results included $192.6 million in pre-tax charges to cost of sales for inventory impairments and write-offs of deposits and pre-acquisition costs related to land option contracts that the company does not intend to pursue. The year-ago quarter's results include $1.1 billion in pre-tax charges to cost of sales for impairments of owned inventory and land and lots that were sold during the quarter and for write-offs of deposits and pre-acquisition costs related to land option contracts.
On average, sixteen analysts polled by Thomson Reuters expected the company to report a loss of $0.30 per share for the latest quarter. Analysts' estimates typically exclude special items.
For the preceding third quarter, the Fort Worth, Texas-based company's net loss was $142.3 million or $0.45 per share.
DR Horton's homebuilding revenue for the fourth quarter totaled $1.01 billion, down 42% from $1.75 billion in the same quarter of the prior year, and missed analysts' consensus revenue estimate of $1.11 billion for the quarter. However, the company's homebuilding revenue was higher than $791.4 million reported in the preceding third quarter.
DR Horton's home sales for the latest quarter declined 34% to $1.01 billion from $1.54 billion a year ago. Land/lot sales were $3.7 million, down sharply from $209.2 million reported in the same period last year.
Commenting on the results, Donald Horton, Chairman of DR Horton's Board, said, "Our net sales orders in the September quarter reflected a 26% increase compared to the prior year quarter. However, market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence."
Peer Performance
In late September, KB Home (KBH) reported a net loss for the third quarter that narrowed from the prior year, helped by lower expenses and cancellation rate as well as an increase in net orders. Net loss for the third quarter narrowed to $66.05 million or $0.87 per share from $144.75 million or $1.87 per share in the prior-year quarter. Revenues for the quarter declined to $458.45 million from $681.61 million in the previous year, as housing revenues dropped due to a 20% decrease in homes delivered and a 15% decline in the average selling price as compared to the previous year.
Also in September, Lennar Corp.'s (LEN, LEN.B) net loss for the third quarter widened from last year, hurt by write-downs and charges and a sharp decline in revenues. The company's net loss for the quarter was $171.61 million or $0.97 per share, compared with net loss of $88.96 million or $0.56 per share, a year ago. Total revenues for the quarter declined to $720.73 million from $1.11 billion in the prior-year quarter, reflecting a decrease in the number of home deliveries and average selling price in the quarter.
Other Metrics
D.R. Horton caters primarily to first-time buyers. More than three quarters of its completed sales in its fourth quarter were for homes under $250,000. But it also competes with foreclosures, which help drag down prices.
During the fourth quarter, the company closed 4,810 homes, compared with 6,961 homes in the year-ago quarter.
As of September 30, 2009, the company's sales order backlog of homes under contract was 5,628 homes, compared with 5,297 homes at September 30, 2008. Net sales orders for the fourth quarter totaled 5,008 homes, up from 3,977 homes in the year-ago period. Cancellation rate for the latest quarter was 27%.
The company declared a quarterly cash dividend of $0.0375 per share, payable on December 15, 2009 to stockholders of record on December 4, 2009.
Full-Year Results
For the fiscal year ended September 30, 2009, DR Horton reported net loss of $545.3 million or $1.72 per share, narrower than net loss of $2.63 billion or $8.34 per share, a year ago.
The year's results included pre-tax charges to cost of sales of $407.7 million of inventory impairments and write-offs of deposits and pre-acquisition costs related to land option contracts that the company does not intend to pursue. The prior year's results include $2.48 billion in pre-tax charges to cost of sales for impairments of owned inventory and land and lots that were sold during the year and for write-offs of deposits and pre-acquisition costs related to land option contracts.
Analysts expected the company to report a loss of $1.30 per share for the year.
The Fortune 500 company's revenue for the year fell to $3.60 billion from $6.52 billion in the previous year. Analysts had a consensus revenue estimate for the year of $3.76 billion.
The company said that homes closed in fiscal 2009 totaled 16,703 homes, compared to 26,396 homes closed in the previous year. Net sales orders for the year were 17,034 homes, compared to 21,251 homes for the prior year.
The company's homebuilding cash balance at September 30, 2009 was $1.92 billion, compared to $1.36 billion a year ago. Net cash provided by operating activities for the year was $1.1 billion, compared to $1.9 billion in the prior year.
Donald Horton said, "We have generated positive cash flow from operations in each of the past thirteen quarters, and our unrestricted homebuilding cash balance was $1.9 billion at September 30, 2009. Our net homebuilding debt to total capitalization was 36.3% at the end of the fiscal year, and we will continue to focus on maintaining our strong liquidity position and balance sheet."
The Commerce Department released a report on Wednesday, showing an unexpected decrease in housing starts for the month of October. The report said that housing starts fell 10.6% to an annual rate of 529,000 in October from the revised September estimate of 592,000. A notable decrease in the construction of new multi-family homes contributed to the unexpected decrease, with the rate for buildings with five units or more falling 33.3% to 48,000. Single-family starts also fell 6.8% to an annual rate of 476,000, the Department said.
Meanwhile, RealtyTrac, an online marketplace of foreclosure properties, last month said that foreclosure filings in the third quarter increased 23% from the year-ago period, and were up 5% from the previous quarter. Releasing its U.S. Foreclosure Market Report for the third quarter of 2009, RealtyTrac said one in every 136 U.S. housing units received a foreclosure filing during the quarter, which is the highest quarterly foreclosure rate since the firm began issuing its report in the first quarter of 2005.
Stock Quotes
DHI closed Thursday's trading at $12.25, down $0.12, on a volume of 10.27 million shares. In Friday's pre-market trading, the stock has been trading at $11.60, down $0.65 or 5.31%. In the past 52 weeks, the stock has been trading in a range of $3.79-$13.90.
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