Earnings Preview: D.R. Horton expected to post 2Q loss
NEW YORK—D.R. Horton Inc. reports fiscal second-quarter earnings Tuesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: The Fort Worth, Texas-based homebuilder is widely expected to report a loss for the quarter ended March 31. The culprit is an anticipated impairment charge taken to write down the value of unsold homes on its books.
The housing market continued to worsen in the first three months of the year, based on industry data and the results from other homebuilders -- some of which have reported losses from operations as prices continue to fall around the country.
Horton has said it expects to generate $1 billion in cash flow in fiscal 2008, which would help it reduce debt even as it grapples with declining revenue.
BY THE NUMBERS: Analysts expect Horton to report a loss of 43 cents per share, according to Thomson Financial. The 11 estimates vary sharply, ranging from a loss of $1.20 per share to a profit of 14 cents per share, given that some analysts have included anticipated impairment charges in their estimates and some have not.
ANALYST TAKE: Lehman Brothers analyst Megan Talbott McGrath expects Horton to take $350 million in inventory-related charges and report a loss of 70 cents per share.
She forecasts sharp drops in orders, closings and revenue, but expects that Horton may be able to improve its debt to capital ratio as it generates more cash flow amid falling operating costs.
WHAT'S AHEAD: No homebuilder has risked predicting an end to the current decline. Horton Chief Executive Donald Horton is known for his candor, and investors will be attentive for any indication he sees an end to the current struggles.
STOCK PERFORMANCE: D.R. Horton shares rose 20 percent to finish March at $15.75. The stock hit a 52-week low of $9.78 on Jan. 9 before rallying sharply along with most other homebuilder stocks as the Federal Reserve continued to cut interest rates and inject liquidity into the banking sector.
