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D.R. Horton posts strong profit

19 minutes ago

D.R. Horton Inc. (NYSE:DHI - news), the No. 1 U.S. home builder, on Wednesday posted a better-than-expected fiscal fourth-quarter profit and raised its outlook for the current year on strong demand nationwide.

Horton's results and forecast reflects the market's resilience for more mid-level priced homes compared with lagging sales of high-end luxury homes. Last week, luxury home builder Toll Brothers dragged down the entire home building sector by warning it plans to build fewer houses and expects to cut its earnings outlook for next year.

Lower loan demand, slower home price appreciation and growing inventory in recent months has many observers declaring a slowdown has finally arrived.

Earlier this month, the average interest rate on U.S. 30-year, fixed-rate mortgages, the industry benchmark, rose to 6.31 percent, the highest level since June 11, 2004.

But Horton, based in Fort Worth, Texas reported quarterly income that rose 61 percent to $563.8 million, or $1.77 per share, from $349.6 million, or $1.11 per share last year.

Revenue rose 45 percent to $5.1 billion.

Analysts on average expected Horton to earn $1.63 per share on $4.73 billion in revenue, according to Reuters Estimates.

But some analysts were cautious and unwilling to overlook industry cost pressures, slowing price increases and rising inventory of existing homes for sale. That view was shared by investors, as the stock fell slightly in early trading Wednesday.

"We are lowering our price target on shares from $40 to $36 due to our belief that home builders will continue to trade significantly below August highs due to rising inventory levels and slowing sales in many markets," Friedman, Billings, Ramsey analyst Craig Kucera wrote in a research note.

Kucera maintained a "market perform" rating on the stock, citing lower gross margins from the prior quarter.

Further on the horizon, Horton may feel some pain from Phoenix, Arizona, one of the hottest U.S. real estate markets, when speculators who have helped drive up median prices 49 percent, flee the area, unloading homes en masse, said Raymond James analyst Rick Murray.

"We suspect the future of this market may unfold similarly to the recent slowdown in Washington, D.C., or a situation similar to the events that transpired in Las Vegas a little over a year ago," Murray wrote in a research note.

While the inventory of homes for sale is low in Phoenix, where Horton is the market leader grabbing 9.6 percent, it has more than doubled over the year, Murray said.

As previously reported, new orders for the quarter rose 26 percent and the company raised its forecast for fiscal 2006 to a range of $5.22 to $5.32 per share. That compared with Wall Street's estimate of $5.22 and the company's previous outlook for the year was $5 to $5.05.

The company expects to sell 58,000 homes and generate more than $15.5 billion.

During the fourth quarter, the company closed on 18,622 homes, up 38 percent from a year ago, with the value of those homes reaching $4.94 billion. Revenue, including land sales and financial services, rose 45 percent to $5.02 billion.

New sales orders during the quarter rose 26 percent to 13,950, while the value of the homes rose 33 percent to $3.8 billion. Horton ended the quarter with a backlog of $5.84 billion, or 19,244 homes on order and awaiting construction.

Horton shares were down 29 cents at $32.02 in early trading. Since the start of the fiscal fourth quarter, Horton shares have fallen 14 percent, in step with the Dow Jones U.S. Home Construction Index (^DJUSHB - news), a wide barometer of home building stock activity,

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