D.R. Horton expects $800M-$900M loss in 4Q

After the stock markets closed Tuesday with all eyes on the presidential election, Homebuilder D.R. Horton Inc. warned investors that it expected to lose up to $900 million in its fourth-quarter — about 18 times more than in the prior-year period.

The nation's largest homebuilder projected the loss for the quarter ended Sept. 30 to range between $800 million and $900 million, including an expected tax benefit of $350 million. That works out to about $2.53 to $2.84 a share.

Analysts had been expecting a loss of 58 cents a share on revenue of about $1.6 billion when D.R. Horton reports its financial results on Nov. 25, according to a poll by Thomson Reuters.

"I expected things to be weak, given the other builders that reported recently, but I didn't expect things to be this weak," said Robert Stevenson, an analyst with Fox-Pitt Kelton.

He was particularly concerned by the spike in canceled home orders, which rose to 47 percent from 39 percent in the second quarter.

"I'm pretty sure that's the worst that we've seen," among the major builders, Stevenson said.

In the year-ago period, D.R. Horton lost $50.1 million, or 16 cents a share.

D.R. Horton projected revenue for the quarter would fall by half to $1.5 billion, reflecting steep declines in home sales and new orders.

"Market conditions in the homebuilding industry deteriorated during our fourth fiscal quarter and October, characterized by rising foreclosures, high inventory levels of both new and existing homes and reduced liquidity in the mortgage markets," Chairman Donald R. Horton said in a statement. "In addition, consumer confidence has been eroded by a weakening economy, higher unemployment and record volatility in the capital markets."

The Fort Worth, Texas-based builder expects to book $1.1 billion in pretax charges on inventory and land-related assets, and an additional pretax impairment charge of $80 million.

"We remain focused on controlling our cost structure, reducing our inventory and generating cash flow from operations," Horton said.

Horton managed to boost its cash reserves to $1.4 billion at the end of the quarter.

Still, net sales orders during the quarter plunged 37 percent to 3,977. The backlog of homes under contract stood at 5,297, a 49 percent drop from the prior-year quarter.

One question D.R. Horton didn't address: Whether the company's gross margin suffered on the sales the builder did make.

"Were they able to hold margin?" Stevenson said. "You'd be more willing as a builder to see big order declines if you can hold on to margin."

Horton expects to generate positive operating cash next year and to receive federal income tax refund in the range of $600 million to $625 million next month.

Shares of Horton rose 19 cents to $6.87 in normal trading Tuesday. The stock was down 11 cents, or about 1.6 percent, in aftermarket trading.

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On the Net:

D.R. Horton: http://www.drhorton.com/

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