Horton stays bearish on housing

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DR Horton, the largest US homebuilder by revenues, on Tuesday maintained its bearish outlook on the sector as it examined more cost cuts and used discounts to clear unsold homes.

The Texas-based builder has halved new construction, and is using a mix of incentives and smaller homes to improve affordability, which helped reduce its cancellation rate in its fiscal first quarter to December 31.

However, Don Tomnitz, chief executive, maintained his view that the national market had yet to hit bottom, and the company refrained from providing any 2007 outlook.

“We’re about 12 months into this slowdown,” he told analysts. “Right now we don’t see anything on the horizon that would change that picture.”

The comments come ahead of the key spring selling season, with DR Horton and its rivals looking to bolster buyer confidence in what analysts said would be an important test for determining the length of the current downturn.

Most homebuilding executives expect the first half of the year to be dismal, as discounts erode margins and writedowns in land holdings and options eat further into profitability.

Mr Tomnitz, who has characterised the company as “the Wal-Mart of homebuilding”, said a second round of cost cuts had been identified to preserve DR Horton’s industry lead in terms of operating costs.

All six of its operating regions were profitable in the December quarter, despite lower average selling costs as the company boosted incentives, cutting its gross margin to 18.6 per cent, a 2.6 percentage point fall from the previous three months.

Mr Tomnitz also signalled that Horton had no immediate plans to seek acquisitions, despite speculation among analysts that smaller private builders would seek buyers as their cash flows eroded.

“There’s nothing out there that floats [our] boat right now,” he said.

DR Horton’s net profit for the December quarter fell from $310.1m to $109.7m, including $78m in write-downs. The shares climbed almost 7 per cent to $28.95 in early Wall Street trading.

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