Homebuilder Profitable Again (DHI, PHM, LEN, TOL, KBH, HD, LOW)

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The collapse of the US housing market has been among the most stubborn problems facing the US economy for the past four years. Construction jobs have vanished, home values have plummeted, and buyers are scarce, even while mortgage rates sink below 4%. It’s a bit of a surprise, then, to see a homebuilder report a pretty solid quarter even if it fell a little short of expectations. The big question, of course, is does this signal the beginning of a recovery in housing?

D.R. Horton, Inc. (NYSE: DHI) reported fourth fiscal quarter EPS of $0.11 on revenue of $1.1 billion this morning, short of the consensus EPS estimate of $0.14, but in-line with the revenue estimate. For the company’s full fiscal year, EPS came in at $0.23 on revenue of $3.5 billion. For 2010, Horton posted EPS of $0.77 on revenue of $4.3 billion. That hardly looks like the start of a recovery. Other homebuilders like PulteGroup, Inc. (NYSE: PHM), Lennar Corp. (NYSE: LEN), Toll Brothers Inc. (NYSE: TOL), and KB Home (NYSE: KBH) have posted, at best mixed results. Even home improvement giants like Home Depot, Inc. (NYSE: HD) and Lowe’s Companies (NYSE: LOW) have been mixed.

PulteGroup posted an EPS loss of -$0.34 in its quarter ended in September, but is expected to post EPS of $0.06 for the December quarter. Lennar beat EPS expectations by a penny in its August quarter and Toll Brothers crushed expectations by posting EPS of $0.25. For their current quarters, Lennar is expected to report EPS of $0.17 and Toll Brothers is looking for EPS of $0.05. KB Home put up a better-than-expected EPS loss of -$0.13 in its August quarter and is expected to post EPS of $0.02 for its November quarter.

Home Depot reported EPS for its July quarter of $0.86, beating estimates, and is expected to report EPS of $0.58 next Tuesday. Lowe’s also beat estimates in its July quarter and is expected to post EPS of $0.33 when it reports earnings next Monday. Home remodeling got a boost this year, up 29% year-over-year in August, but that number should begin to decline as the remodeling season is now behind us. Lowe’s announced last month that it would close 20 stores and fire about 1,950 employees, costing the company about $0.17-$0.20 in EPS.

In its quarterly report, Horton noted that its sales backlog had grown nearly 18%, from 4,128 new homes in September 2010 to 4,854 this past September. However, the company also said that its cancellation rate for the quarter was 29%. That backlog can hardly be considered safe, especially given that a surge of foreclosed properties for sale is expected to hit the market sometime in the next few months.

In the earnings release, Horton’s chairman said that the company is positioned “for a stronger start to fiscal 2012.” That’s good, but how the company finishes is more important. There are so many headwinds to new homebuilding that it is hard to be too confident that 2012 will be much better than 2011.

Paul Ausick

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