Bob Toll seems to have found a roomful of dance partners. You may recall that, early last month, when he discussed homebuilder Toll Brothers'
During the past couple of days, builders D.R. Horton
Fort Worth-based Horton, which seemed more aggressive than rivals in dumping land position and options, reported net income for the quarter of $109.7 million, or $0.35 per share. That's down 64% from year-ago earnings of $310.1 million, or $0.98 per share.
Horton's inventory impairments cost only $0.08 for the quarter, while a penny more went toward writing off deposits and pre-acquisition costs related to land options contracts that the company decided not to pursue. Net sales orders for the quarter fell 23% to 8,771 homes, vs. 11,463 units the prior year.
Dallas-based Centex reported a loss of $235.4 million from continuing operations, or $1.96 a share, compared to year-ago earnings of $313.2 million, or $2.37 a share. For its part, the company spent $138 million writing off option deposits and land pre-acquisition costs, plus $297 million for land valuation adjustments.
Looking ahead, Centex's management predicts breakeven results for the fourth quarter, ending March 31. For fiscal 2007, it expects $0.25 in earnings from continuing operations, following another anticipated round of land charges and an increase in the company's tax reserve.
After the market's close on Wednesday, California-based Ryland checked in with quarterly earnings of $1.98 per share. That was a 40% plunge from last year's comparable $3.32, but materially greater than analysts' $1.84 consensus expectation. Closings fell 15.8%, compared to Centex's 12% reduction. In the final analysis, the company's homebuilding segments reported earnings of $130.5 million, a drop of 50.8%. Perhaps more importantly, Ryland's 2007 guidance calls for an earnings range of $3.75 to $4.25 per share, versus $7.83 last year.
So there you have it: an almost choreographed dance of homebuilders at or near the bottom of the market. I say almost because Centex, with its ongoing meat-axe approach to its land positions, seems somewhat out of step with its peers. Ryland's quarterly earnings weren't great, especially compared to last year's -- but even if changes in the market hadn't rendered that an unfair comparison, smaller profits are still better than a loss.
I still consider Toll and Ryland solid long-term plays. But I'm shelving my previous enthusiasm for Centex until it slaps a tourniquet on the draconian cuts in its land position. For Fools like me who believe that 2007 will see homebuilding slowly, steadily rise again, Toll and Ryland might deserve your attention.
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