Homebuilder DR Horton (NYSE:DHI), another business that's remodeling itself, will report Q1 2007 financial results on Jan. 23.

What analysts say:

  • Buy, sell, or waffle? Analysts are generally bullish on builders in the waning days of their cycle, and seven of DR Horton's analysts say buy, while five rate it a hold, and just one says sell.
  • Revenues. Revenues, though expected to be down, are forecast to be off by only 5% from last year, at $2.76 billion.
  • Earnings. Profits, though, will fall 66% to $0.33 per share.

What management says:
DR Horton softened the blow of its quarterly sales report when it preannounced at the beginning of the month that orders were off and cancellations were higher than usual. While it said that first-quarter cancellations would actually be less than they were than the last quarter, it admitted that it had to use a higher level of incentives to achieve those sales, though it didn't quantify them in the release. Expect them to be pretty significant. Cancellations among most builders have been dramatically higher this past quarter, and if DR Horton actually lowered the rate of decline, then it was some fancy footwork -- increased sales or significantly lower average selling prices -- at the root of it.

What management does:
The semblance of order DR Horton was able to maintain has been predicated on reducing the sale prices of its homes in this tough environment. The average selling prices on the homes it's closed on has been falling throughout the year, starting in the first quarter at $282,000 but closing out the year off 2.8% at $273,900. That figure is up from last year, but it shows that the company was conceding a lot to buyers.

Margins %

09/05

12/05

03/06

06/06

09/06

Gross

26.0

26.5

26.6

25.5

24.7

Operating

17.2

17.4

17.3

16.0

15.0

Net

10.6

10.8

10.7

10.0

8.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Like the other builders, DR Horton has been getting out of land-option contracts to reduce the amount of inventory it has on hand, taking charges to earnings along the way. Centex (NYSE:CTX) is taking a hit of about $150 million along with writing off about $300 million in land valuations. Motley Fool Hidden Gems pick MDC Holdings (NYSE:MDC) is writing off $100 million, and Hovnanian (NYSE:HOV) wrote off some $357 million. DR Horton wrote off $124.7 million worth in 2006 and will have to increase that amount to keep up with the expected valuations at current market rates.

Competitors:

  • Pulte Homes (NYSE:PHM)
  • Toll Brothers (NYSE:TOL)
  • Ryland Homes (NYSE:RYL)

Related Foolishness:

DR Horton has earned a two-star rating from Motley Fool CAPS, the new investor-intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

MDC Holdings is a recommendation of Motley Fool Hidden Gems. A 30-day guest pass lets you see why Fools think this homebuilder is built differently.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.