Fort Worth, TX, April 20, 2007--D.R. Horton Inc. said Thursday that profits plunged 85 percent in the January-March quarter, and its chief executive said the weak housing market would continue into 2008.
Horton was hurt particularly by a slowdown in pricey California, where the number of people able to afford a new home has been shrinking.
The collapse in profits wasn't surprising. The company warned last week that recent orders had dropped by more than one-third and cancellations were still running at high rates.
Investors took the news in stride. Shares of Horton fell 6 cents to $22.98 Thursday on the New York Stock Exchange.
Horton is responding to the housing slump by cutting jobs -- it has shrunk to 7,300 employees from 10,000 last spring -- and abandoning deposits on options to buy land.
Horton said net income for the first three months of 2006 fell to $51.7 million, or 16 cents per share, from $352.8 million, or $1.11 per share, a year ago.
Those results included charges of $81.2 million, or 16 cents per share, mostly to write down the value of land options, 80 percent of which were in California.
Analysts, whose estimates typically exclude such one-time charges, were looking for profit of 27 cents per share, according to a survey by Thomson Financial.
Homebuilding revenue sank 26 percent, to $2.62 billion from $3.53 billion, as the number of homes closed fell 22 percent, to 9,792. Wall Street expected better. Analysts had forecast revenue of $2.79 billion in the March quarter, the second in Horton's fiscal year.
Builders have been forced to slash prices and offer other incentives to sell houses in the slumping market.
Chief Executive Donald J. Tomnitz said Horton had done well to earn a profit in a tough market, but he acknowledged that sales fell short of expectations.
Tomnitz said Fort Worth-based Horton would cut prices to clear a backlog of 4,300 homes that were built without a buyer waiting, and those properties from which buyers had walked away.
The weak market will linger into 2008 and could get worse before it improves, he said, blaming some of the company's troubles on high home prices and high costs for builders in California.
"We're struggling to find qualified buyers" in Sacramento and San Diego, Tomnitz said. "The only way we can increase that pool of affordable buyers is to make a product more affordable and lower average sales prices."
Tomnitz said the company had cut prices in California in the past month after trying to hold them steady.
The flip side of the unsold inventory is Horton's sales backlog of homes under contract. As of March 31, the backlog was 16,885 homes worth $4.8 billion, down from 24,017 homes worth $7.1 billion a year ago.
Officials said about 46 percent of the homes under construction were being built on speculation -- that is, with no identified buyer. They said that ratio should be in the mid-30s.
Horton has been reducing its land inventory. It owned or controlled 266,000 lots on March 31, down one-third from 396,000 lots a year ago.
