Home Builders' Results Point
To Continuing Industry Woes
By MIKE BARRIS
July 26, 2007
Losses posted by three major home builders showed that the malaise in the industry deepened further in the latest quarter and may get even worse, exacerbated by a glut of unsold homes and tightened credit standards.
"We believe that market conditions will continue to be challenging," said Donald R. Horton, chairman of D.R. Horton Inc., the nation's largest builder by number of units.
Beazer Homes USA Inc. President and Chief Executive Ian J. McCarthy echoed Donald Horton, saying: "Operating conditions in the housing industry deteriorated further in the fiscal third quarter and remain very challenging."
The sector has been struggling with an inventory glut, a surge in cancellations from jittery buyers and a slump in demand. Rising default and foreclosure rates in the subprime-mortgage sector have worsened the downturn.
D.R. Horton, which earlier this month disclosed a plunge in orders for the fiscal third quarter, Thursday swung to a net loss for the period as it took land-related writedowns amid the continuing downturn in the housing market.
Beazer, which also reported Thursday, and Pulte Homes Inc., which reported late Wednesday, also swung to losses, underscoring the bleak times facing the homebuilding industry. A Commerce Department report Thursday also called attention to the deepening woes in the industry, stating that new-home sales took their fifth fall in six months during June, as sales of single-family homes decreased by 6.6%.
The home builders' shares were down in morning trading.
D.R. Horton reported a net loss of $823.8 million, or $2.62 a share, for the quarter ended June 30, compared with profit of $292.8 million, or 93 cents a share, a year earlier. The latest results included pre-tax charges of $835.8 million for inventory impairments and $16.2 million for write-offs of deposits and pre-acquisition costs related to land option contracts that the company does not intend to pursue. Results also included a pre-tax goodwill impairment charge of $425.6 million.
Analysts had expected the Fort Worth, Texas, builder to post a loss of 35 cents a share, according to Thomson Financial. Analysts typically exclude items in their estimates.
Home-building revenue for the latest quarter fell 29% to $2.55 billion. Revenue from home sales fell 31% to $2.47 billion. The sales backlog of homes under contract at June 30 was 15,801 homes, valued at $4.4 billion, compared with 24,956 homes worth $7.4 billion a year ago.
Earlier this month, the company warned of a 40% plunge in net orders and a third-quarter loss.
Orders at D.R. Horton for the latest quarter fell to 8,559 homes from 14,316 homes a year earlier. Orders were valued at $2 billion, down from $3.8 billion a year ago. The cancellation rate, which reflects sales orders canceled divided by gross sales orders, was 38%, up from 32% in the prior quarter.
For the rest of the year, Mr. Horton said his company will "focus on generating cash, reducing inventory balances and paying down outstanding debt to maintain a strong balance sheet."
Beazer Homes swung to a loss after it cut prices to spur sales and took major charges to write down the value of unsold inventory.
Beazer CEO McCarthy added: "Most housing markets across the country continue to be characterized by an oversupply of both new and resale home inventory, reduced levels of consumer demand for new homes and aggressive price competition among home builders. These factors, together with a pronounced credit tightening in the mortgage markets, particularly for credit challenged home buyers, are likely to lead to continued difficult market conditions for Beazer Homes and other home builders."
Although Mr. McCarthy said he couldn't predict when market conditions would improve, he said he continues to believe that "longer-term industry fundamentals remain compelling due to demographic changes, employment trends and new home supply constraints."
Faced with these challenges, Mr. McCarthy said the company plans initiatives including "reductions in our direct construction costs," and "enhancing our sales and marketing efforts."
For the latest quarter, Beazer posted a loss of $123 million, or $3.20 a share, compared to a year ago, when it earned $102.6 million, or $2.37 a share. The latest quarter included pretax charges of $188.5 million to write down the value of inventory and goodwill, as well as forfeit options on land. Wall Street analysts had projected a loss of 32 cents a share on average, according to Thomson Financial.
Revenue fell to $761 million from $1.2 billion a year ago.
Beazer's results follow the company's disclosure Monday that the Securities and Exchange Commission has upgraded its informal probe to the level of a formal investigation. The builder said in May that the SEC was investigating possible securities-law violations at the company. Beazer said it would continue to cooperate with the agency. An FBI probe of Beazer's lending practices was made public in March.
Pulte Homes, meanwhile, swung to a second-quarter net loss of $507.6 million, or $2.01 a share, from year-earlier earnings of $243 million, or 94 cents a share. Revenue at the Bloomfield Hills, Mich., home builder plunged 40% to $2.02 billion.
Analysts, according to Thomson Financial, had expected a loss of $2.04 and revenue of $2.04 billion.
Pulte President and Chief Executive Richard J. Dugas Jr. said the homebuilding industry "continues to face an extremely difficult environment that includes record existing and new home inventory levels, intense price competition and weak consumer sentiment for housing."
Pulte, he went on, "continues to focus on reducing its land and speculative home portfolio, and properly adjusting overhead spending to put us in the best position to navigate through this continued severe downturn."
The company, however, isn't providing estimates beyond the third quarter, "due to the lack of longer-term earnings visibility and the difficult market conditions that persist." For the third quarter, the company forecast income from continuing operations at 10 to 20 cents a share, excluding any additional impairments or land-related charges.
To Continuing Industry Woes
By MIKE BARRIS
July 26, 2007
Losses posted by three major home builders showed that the malaise in the industry deepened further in the latest quarter and may get even worse, exacerbated by a glut of unsold homes and tightened credit standards.
"We believe that market conditions will continue to be challenging," said Donald R. Horton, chairman of D.R. Horton Inc., the nation's largest builder by number of units.
Beazer Homes USA Inc. President and Chief Executive Ian J. McCarthy echoed Donald Horton, saying: "Operating conditions in the housing industry deteriorated further in the fiscal third quarter and remain very challenging."
The sector has been struggling with an inventory glut, a surge in cancellations from jittery buyers and a slump in demand. Rising default and foreclosure rates in the subprime-mortgage sector have worsened the downturn.
D.R. Horton, which earlier this month disclosed a plunge in orders for the fiscal third quarter, Thursday swung to a net loss for the period as it took land-related writedowns amid the continuing downturn in the housing market.
Beazer, which also reported Thursday, and Pulte Homes Inc., which reported late Wednesday, also swung to losses, underscoring the bleak times facing the homebuilding industry. A Commerce Department report Thursday also called attention to the deepening woes in the industry, stating that new-home sales took their fifth fall in six months during June, as sales of single-family homes decreased by 6.6%.
The home builders' shares were down in morning trading.
D.R. Horton reported a net loss of $823.8 million, or $2.62 a share, for the quarter ended June 30, compared with profit of $292.8 million, or 93 cents a share, a year earlier. The latest results included pre-tax charges of $835.8 million for inventory impairments and $16.2 million for write-offs of deposits and pre-acquisition costs related to land option contracts that the company does not intend to pursue. Results also included a pre-tax goodwill impairment charge of $425.6 million.
Analysts had expected the Fort Worth, Texas, builder to post a loss of 35 cents a share, according to Thomson Financial. Analysts typically exclude items in their estimates.
Home-building revenue for the latest quarter fell 29% to $2.55 billion. Revenue from home sales fell 31% to $2.47 billion. The sales backlog of homes under contract at June 30 was 15,801 homes, valued at $4.4 billion, compared with 24,956 homes worth $7.4 billion a year ago.
Earlier this month, the company warned of a 40% plunge in net orders and a third-quarter loss.
Orders at D.R. Horton for the latest quarter fell to 8,559 homes from 14,316 homes a year earlier. Orders were valued at $2 billion, down from $3.8 billion a year ago. The cancellation rate, which reflects sales orders canceled divided by gross sales orders, was 38%, up from 32% in the prior quarter.
For the rest of the year, Mr. Horton said his company will "focus on generating cash, reducing inventory balances and paying down outstanding debt to maintain a strong balance sheet."
Beazer Homes swung to a loss after it cut prices to spur sales and took major charges to write down the value of unsold inventory.
Beazer CEO McCarthy added: "Most housing markets across the country continue to be characterized by an oversupply of both new and resale home inventory, reduced levels of consumer demand for new homes and aggressive price competition among home builders. These factors, together with a pronounced credit tightening in the mortgage markets, particularly for credit challenged home buyers, are likely to lead to continued difficult market conditions for Beazer Homes and other home builders."
Although Mr. McCarthy said he couldn't predict when market conditions would improve, he said he continues to believe that "longer-term industry fundamentals remain compelling due to demographic changes, employment trends and new home supply constraints."
Faced with these challenges, Mr. McCarthy said the company plans initiatives including "reductions in our direct construction costs," and "enhancing our sales and marketing efforts."
For the latest quarter, Beazer posted a loss of $123 million, or $3.20 a share, compared to a year ago, when it earned $102.6 million, or $2.37 a share. The latest quarter included pretax charges of $188.5 million to write down the value of inventory and goodwill, as well as forfeit options on land. Wall Street analysts had projected a loss of 32 cents a share on average, according to Thomson Financial.
Revenue fell to $761 million from $1.2 billion a year ago.
Beazer's results follow the company's disclosure Monday that the Securities and Exchange Commission has upgraded its informal probe to the level of a formal investigation. The builder said in May that the SEC was investigating possible securities-law violations at the company. Beazer said it would continue to cooperate with the agency. An FBI probe of Beazer's lending practices was made public in March.
Pulte Homes, meanwhile, swung to a second-quarter net loss of $507.6 million, or $2.01 a share, from year-earlier earnings of $243 million, or 94 cents a share. Revenue at the Bloomfield Hills, Mich., home builder plunged 40% to $2.02 billion.
Analysts, according to Thomson Financial, had expected a loss of $2.04 and revenue of $2.04 billion.
Pulte President and Chief Executive Richard J. Dugas Jr. said the homebuilding industry "continues to face an extremely difficult environment that includes record existing and new home inventory levels, intense price competition and weak consumer sentiment for housing."
Pulte, he went on, "continues to focus on reducing its land and speculative home portfolio, and properly adjusting overhead spending to put us in the best position to navigate through this continued severe downturn."
The company, however, isn't providing estimates beyond the third quarter, "due to the lack of longer-term earnings visibility and the difficult market conditions that persist." For the third quarter, the company forecast income from continuing operations at 10 to 20 cents a share, excluding any additional impairments or land-related charges.
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