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Homebuilder D.R. Horton 1Q profit plummets, but shares climb as it beats expectations

Homebuilder D.R. Horton 1Q profit plummets, but shares climb as it beats expectations

D.R. Horton Inc., the largest U.S. homebuilder by deliveries, said Tuesday that earnings fell 64 percent in the last three months of 2006 as it wrote down the value of assets and forfeited land deposits and took fewer sales orders.
But the results still beat Wall Street's expectations, and Horton shares jumped $1.25, or 4.6 percent, to $28.38 in afternoon trading on the New York Stock Exchange.
Horton's stock may also have benefited from a Goldman Sachs report on the homebuilding sector. Goldman said the housing market is "very troubling" with high cancellation rates and declining prices but said that the "worst may be past."
Goldman upgraded Horton, Toll Brothers Inc. and MDC Holdings Inc. to "buy," saying they were lower-risk companies in the group, and raised Ryland Group Inc. to "neutral." It downgraded others, including Lennar Corp. and Hovnanian Enterprises Inc.
Horton reported that net income in the quarter ended Dec. 31 plummeted to $109.7 million (euro84.13 million), or 35 cents per share, from $310.1 million (euro237.81 million), or 98 cents per share, a year earlier.
The latest quarter included charges of $77.5 million (euro59.43 million), or 15 cents per share, to cover inventory write-downs and forfeited deposits on land options.
Analysts expected the company to earn 33 cents per share in the most-recent quarter, according to a survey by Thomson Financial.
Homebuilding revenue edged higher to $2.84 billion (euro2.18 billion), as Fort Worth-based Horton closed on 10,202 homes, up from 9,891 last year.
Sales orders fell sharply to 8,771 homes worth $2.3 billion (euro1.76 billion) from 11,463 worth $3.2 billion (euro2.45 billion) a year earlier, a further sign that the housing market remains mired in a slump.
Horton's cancellation rate in the Dec. 31 quarter was 33 percent, an improvement from 40 percent in the previous quarter but higher than the usual rate of 16 to 20 percent.
Horton used incentives to close on more homes than it did a year earlier. The company did not provide guidance for its new fiscal year, which began in October, but said conditions in the housing sector, which has been in a slump the past year, "remain challenging."
Backlog under contract as of Dec. 31 totaled 16,694 homes valued at $4.7 billion (euro3.6 billion) versus 20,816 homes valued at $6.2 billion (euro4.75 billion) the year before.
Horton, like many large builders, is scrambling to reduce inventory to staunch the sharp decline in prices since early 2006. The company cut its lots owned or controlled to 297,000, down 25 percent from March 2006, while homes under construction fell 35 percent to 26,000 from the June peak of 40,000.