Tuesday May 6, 11:25 PM
Land writedown hits DR Horton
By Daniel Pimlott in New York
DR Horton, the largest US housebuilder by sales volume, reported its first operating loss on Tuesday as it was forced to write down the value of its land holdings. DR Horton posted a much larger loss than expected of $1.31bn, or $4.14
per share, against a profit of $51.7m, or 16 cents per share, a year ago. The loss came because of pre-tax land-related charges of $834m on $2bn of projects, which pushed the company to a $51m operating loss.More than 80 per cent of the inventory impairments were on projects in California, one of the key flashpoint states in the housing slump. Revenue dropped 38 per cent to $1.62bn. Analysts surveyed by Thomson Financial had forecast a much smaller loss of 39 cents per share on revenue of $1.36bn. The company cut its quarterly dividend in half to 7.5 cents in response to the loss. DR Horton has been badly exposed to the housing crisis as many of its customers are first-time buyers who, because of tighter lending standards, are having more trouble securing mortgages. "We will continue to focus on being the low-cost operator in the industry, which remains one of our distinct competitive advantages," said Don Tomnitz, chief executive, in a call with analysts. The land charges, which included $817m in writedowns on inventory and $17m in writing off deposits and pre-purchase costs on contracts for land options that DR Horton does not intend to pursue, were equivalent to nearly 10 per cent of total equity, according to analysts at JPMorgan. However, the writedowns came amid a 77 per cent increase in net homes sold from the previous quarter to 7,528, after a big push to reduce its inventory. Sales were still down nearly a quarter compared with the year before. DR Horton generated $450m in cash flow in the quarter, meaning the company hit its target of producing $1bn in cash for the full year within the first two quarters. DR Horton said its average closing price was down 8 per cent to $237,800 and its gross profit margin had plunged to 9.4 per cent from 17.7 per cent a year before. "Given the current weak environment and still-elevated inventory levels, we believe further home price deflation and large land charges remain for DR Horton and the industry," said Michael Rehaut, an analyst at JPMorgan. Shares in the closed 5.5 per cent up at $16.85. Nearly $24bn in writedowns and impairments have hit the 15 main US housebuilders that Standard & Poor's covers since the beginning of 2006. "We were taken aback by the size of the impairments," said Ken Leon, an analyst at S&P. "Although, they have done a very good job in managing their cash flow, strengthening their balance sheets . . . and positioning themselves for when we get through this downturn. "We are keeping our fingers crossed that there won't be a double dip down in the economy after we see all the cheques in the mail [from consumer tax rebates as part of the Bush administration's stimulus package]."
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