Tuesday, D.R. Horton, Inc. (DHI), one of the largest homebuilders in the United States, reported a 39% drop in net sales orders for the fourth quarter amid higher cancellations as the U.S. housing market is continuing its downtrend.
On the news, shares of D.R. Horton fell 47 cents or 3.46% and currently trading at $13.11. The shares are trading on a volume of 1.34 million compared to its 3-month average volume of 8.13 million. The stock closed Monday's regular trading at $13.58 and gap opened lower on Tuesday at $13.30.
The Fort Worth, Texas-based company that sells single-family homes reported net sales orders for the fourth quarter of 6,374 homes ($1.3 billion), compared to 10,430 homes ($2.5 billion) in the same quarter last year. The company's cancellation rate, which is arrived at by dividing sales orders cancelled by gross sales orders, was 48%.
For fiscal year 2007, net sales orders totaled 33,687 homes ($8.2 billion), compared to 51,980 homes ($13.9 billion) for fiscal year 2006.
Donald Horton, Chairman of the Board, said, "Market conditions for new home sales declined in our September quarter as inventory levels of both new and existing homes remained high while pricing remained very competitive. We also experienced reduced mortgage availability due to tighter lending standards, and buyers continued to approach the home buying decision cautiously. We expect the housing environment to remain challenging."
The company significantly reduced its homes under construction during the fourth quarter, which contributed to achieving its cash flow from operations target of $1 billion for the fiscal year.
The company is slated to release its fourth quarter financial results on November 20 before the market opens. Wall Street analysts, on average, are expecting a loss of $0.12 per share for the fourth quarter on revenues of $2.90 billion.
In July, D.R. Horton reported a net loss for its third quarter of $823.8 million, or $2.62 per share, compared to a profit of $292.8 million, or $0.93 per share in the same quarter last year. Homebuilding revenue for the third quarter of fiscal 2007 fell to $2.5 billion from $3.6 billion in the same quarter of fiscal 2006.
The U.S. housing market has been going through a tough phase as high prices and surging interest rates preventing investors from buying new homes. Further, problems in the credit market, stemming from sub-prime market turmoil, are only aggravating the situation. Tougher lending standards also have affected prospective buyers with good credit.
In September, the housing market index fell 2 points to 20, matching its record low reached in January 1991. According to the National Association of Home Builders, the seventh consecutive month of declines came about due to concerns over substantial inventory of new homes for sale and the effects the deepening mortgage market crisis is having on buyer demand.
Due to the weak housing market, several other players in the industry have either reported loss or generated lower sales in recent quarters. Companies like Home Depot Inc. (HD) and Lowe's Companies Inc. (LOW) have also issued profit warnings.
Last week, home building company Centex Corp. (CTX) reported that for the second quarter of 2008, it closed at 7,350 units, down 14% from the year-ago quarter. Net sales for the second quarter declined 13% to 5,953 units from the prior-year quarter. Backlog for the similar period of 2007 was 9,633 units, 38% lower than the previous-year quarter.
Late September, the Los Angeles, California-based KB Home (KBH) reported a net loss of $35.61 million, or $0.46 per share for the third quarter, compared to a profit of $153.21 million, or $1.90 per share in the year-ago quarter. KB Home's revenue dropped 32% to $1.54 billion.
On September 25, another homebuilder Lennar Corp. (LEN, LEN.B) posted a loss in its third quarter, hurt by a one-time charge in addition to a 44% decline in revenues. The Miami, Florida-based company's net loss for the quarter was $513.85 million, or $3.25 per share, compared to net earnings of $206.68 million, or $1.30 per share a year ago. Lennar's third-quarter revenues came in at $2.34 billion, down from $4.18 billion in the prior-year quarter.
Early September, the Atlanta, Georgia-based Home Depot said it currently expects earnings per share from continuing operations to decline 7% - 9% for fiscal 2007. Home Depot had previously forecast a decline of 12% - 15% for the year.
During September, Lowe's indicated that its current sales are trending below its prior expectations as drought conditions in the mid-Atlantic, Southeastern and Western regions of the country have impacted the performance of outdoor categories. As a result, Lowe's stated that it now expects to deliver earnings for the fiscal year at the low end or slightly below its prior guidance. The Mooresville, North Carolina-based Lowe's had earlier expected earnings per share of $1.97 - $2.01 for the fiscal year.
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