Tags: D.R. Horton | DHI | homebuilders | construction | stocks

D.R. Horton Reels but Moves Forward

By    |   Wednesday, 06 Jul 2011 03:02 PM

D.R. Horton (DHI) is working itself out of the housing slump. It hasn't been easy. The home builder reported net income of $27.8 million or 9 cents per share in the second quarter of fiscal 2011 compared with a net income of $11.4 million or 4 cents per share during the same quarter a year ago. The effects of non-cash tax benefits enabled D.R. Horton to avoid reporting a loss.

Revenue fell 18 percent to $733.1 million during the quarter. Homes closed in the quarter hit 3,516 units compared with 4,260 homes in the same quarter of fiscal 2010.

Yes, the housing sector is not exactly rocketing along the road to recovery. But green shoots appear to be breaking up through the company's numbers.  "We increased our homes in inventory by 1,400 during the quarter to support the increased demand for new homes in the spring selling season," says company Chairman Donald R. Horton.

"Our backlog of 5,281 homes at March 31st is higher than our backlog at the beginning of the fiscal year, and we expect our closings and pre-tax profitability to be higher in the second half of fiscal 2011 than in the first half."

Still, market conditions in the homebuilding industry remain challenging due to high foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards, and weak consumer confidence, the company adds.

High unemployment rates continue to plague economic recovery, with the jobless rate hitting 9.1 percent, down from more than 10 percent during the recession but still higher than policymakers would like to see.

Unemployment rates have analysts concerned. Too many jobless workers translates into less demand for new homes. Only a strong recovery in the labor market will seriously boost housing demand.

"The recent pick-up in employment has not yet worked its way through to improvements in housing. This may be in part because of lag effects: Increases in employment are relatively recent. Furthermore, recent employment increases have been anything but robust," Moody's Analytics writes in a note on the sector.

Weak demand

Even a small hike in non-farm payrolls will be barely sufficient to accommodate the regular influx of new workers due to population growth.
"Industry observers generally assume that as the employment situation improves, so will the housing sector. But there is a risk that this assessment is too optimistic, as there continues to be a large inventory of existing homes," Moody's says.

"The elevated homeowner vacancy rate — an 8.9 months supply of homes as of February — is at its highest level since last summer and not all that far away from the record-high low double-digit levels of 2008 and early 2009," the ratings agency warned.


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D.R. Horton (DHI) is working itself out of the housing slump. It hasn't been easy. The home builder reported net income of $27.8 million or 9 cents per share in the second quarter of fiscal 2011 compared with a net income of $11.4 million or 4 cents per share during the...
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2011-02-06
Wednesday, 06 Jul 2011 03:02 PM
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