D.R. Horton Reports Orders Fell 23% in First Quarter

By Janet Morrissey
From

Home-building giantD.R. Horton Inc. saw orders fall 23% and cancellations remain high in its fiscal first quarter as the company continued to struggle with a deteriorating housing market.

The Fort Worth, Texas, builder received net sales orders for 8,771 homes valued at $2.3 billion in the latest quarter ended Dec. 31, down from 11,463 homes valued at $3.2 billion a year ago. The 23% decline was slightly better than the 25% drop-off experienced in its fiscal fourth quarter. However, the decline was higher than the 18% decrease Banc of America analyst Daniel Oppenheim had been expecting, and significantly above the 6% decline rivalLennar Corp. reported in its fiscal fourth quarter.

In premarket trading, shares changed hands at $25.40, compared with Monday's closing price of $25.39.

Cancellations from buyers nervous about the unpredictable and volatile housing market continued to hamper the company's net sales. The cancellation rate was 33% in the quarter, which was slightly better than the 40% cancellation rate reported in the fourth quarter. However, Chairman Donald Horton cautioned that the small improvement is not an indication that demand is rebounding.

"Although our cancellation rate decreased in the first quarter of fiscal 2007 compared to the fourth quarter of fiscal 2006, we continue to experience higher-than-normal cancellation rates and an increased use of sales incentives in many of our markets," Horton said in a prepared statement.

Indeed, D.R. Horton, which had been reluctant to cut prices and offer incentives at the start of the housing downturn, has stepped up its use of discounting in recent months to move sales.

The company will be reporting its quarterly earnings results on Jan. 23. Thomson Financial pegs the company's fourth-quarter earnings-per-share at 36 cents, down 63% from 98 cents a year earlier.

The company's decision to increase incentives to move sales will likely take a toll on the company's profit margins as it has for other builders.

Wall Street will also be watching closely to see how much in land-related write-downs the company takes in the quarter. Last week, rival Lennar stunned Wall Street when it said it expected to take land-related write-downs of between $400 million and $500 million -- among the largest yet for builders. In general, builders take write-downs when deteriorating market conditions cause land and home values to fall so sharply that it's no longer financially viable for a builder to construct homes on those parcels.

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