D.R. Horton this morning (July 10) reported that its net sales orders for the fiscal third quarter fell 40.2% to 8,559 homes from 14,316 during the same period last year, representing a 47.3% drop in revenue from $3.8 billion last year to $2.0 billion in 2007's third quarter. Donald R. Horton, board chairman, also said that while the company will report a profit from operations, it will be more than wiped out by impairments.
Ft. Worth-based Horton also reported that its cancellation rate, which was 32% during the fiscal second quarter of 2007, rose to 38% during the third quarter. For the first nine months of fiscal 2007, net sales orders fell 34.2% to 27,313 homes from 41,550 last year, with revenue falling 39.4% to$6.9 billion from $11.4 billion for the same period of fiscal 2006.
Said Donald Horton, "Market conditions for new home sales declined in our June quarter as inventory levels of both new and existing homes remained high, and we expect the housing environment to remain challenging. We adjusted our sales prices as selling conditions deteriorated, and we continue to react quickly to market dynamics."
He also said that "significant asset impairments" would result in a loss for the quarter as well as for the first nine months of the 2007 fiscal year.
Orders were off across all regions for the quarter, with the Northeast down 41.9% from 1,979 to 1,148; the Southeast down 25.4% from 2,010 to 1,500; South Central off 40.8% from 4,290 to 2,541; Southwest down 41.3% from 3,227 to 1,894; California down 53% from 1,708 to 804; and the West off 39% from1,102 to 672.
In a research note, Michael Rehaut, the lead home building analyst at J.P. Morgan Securities, said the research group was surprised at the magnitude of the declines and estimated that the impairments referred to by Donald Horton would amount to between $450 million and $550 million, which would amount to 4.7% of equity after tax. "While disappointed with these results, we do not believe them to be too surprising given the current environment, as well as, we believe, this news to be already mostly anticipated by the stock," wrote Rehaut. "Moreover, while we believe a catalyst over the next few months is unlikely, we believe stabilization should begin to emerge over the next few quarters."