Posted By: Mark Thatcher

By DAVID KOENIG, AP Business WriterTue Nov 14, 2:46 PM ET

DALLAS - Home builder D.R. Horton Inc. said Tuesday its latest quarter's profit fell by half as it closed on fewer homes and wrote down the value of options for land it won't buy, while executives warned of another tough year for housing in 2007.
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"I'd say we're in the early stages of a declining market," said Chief Executive Donald J. Tomnitz. "Most of these downturns are longer and deeper than we envision at the beginning."

Still, Horton's sales and profits were much stronger than Wall Street had expected, and the stock rallied.

Shares of the Fort Worth-based company jumped $1.84, or 8.2 percent, to $24.22 in afternoon trading on the New York Stock Exchange.

Profit in the fiscal fourth quarter ended Sept. 30 sank 51 percent to $277.7 million, or 88 cents per share, compared with $563.8 million, or $1.77 per share, a year earlier.

Consolidated revenue, including revenue from the company's financing arm, fell 4 percent to $4.9 billion from $5.1 billion a year ago.

Analysts polled by Thomson Financial expected a profit of 69 cents per share on revenue of $3.93 billion.

As the company had foreshadowed last month, orders in the July-September quarter fell 25 percent from a year ago, to 10,430 homes from 13,950 homes in the same period last year, with high numbers of cancelations.

The decline in new orders spread from coast to coast, from a 40 percent decline in the Southeast and 32 percent in the Northeast to 9 percent in California. The south-central region, including Texas, Oklahoma and Louisiana, was the healthiest, with orders dropping only 9 percent.

Horton took pretax charges of $199 million, or 39 cents per share, to write down the value of land, options to purchase additional land, and pre-acquisition costs.

Company officials declined analysts' requests to offer a forecast for and 2007 sales and order cancelations.

CEO Tomnitz said the struggling housing market made it impossible for the company to predict sales, cancelations and earnings for the company's new fiscal year, which started in October.

Company officials said, however, that their sales and closings were better than the figures from rivals. They said they were cutting costs, including building fewer homes in the current quarter.

The key to Horton beating expectations in the quarter was that the builder closed on more than 17,000 sales after telling analysts to expect about 14,000 closings.

Daniel Oppenheim, an analyst for Bank of America Securities, said the higher closings rate will leave Horton with a smaller backlog, which could be a challenge due to weakness in new orders.

Wachovia Securities analyst Carl Reichardt said it was hard to see good news in a sharp drop in earnings and big write-downs, "but such are the times in homebuilding." He said Horton "performed much better than we or most on the Street expected" on many financial measurements.

Reichardt said the land write-downs were not surprising because Horton had been among the most aggressive builders at acquiring land in the past several years.

Other analysts said the company faces risks including an economic slump that could hurt housing demand even more, and the possibility of rising mortgage interest rates.

The September quarter marked the end of Horton's fiscal year, in which earnings fell 16 percent to $1.23 billion, or $3.94 per share, compared with $1.47 billion, or $4.71 per share, for the previous fiscal year. Full-year revenue rose 8 percent to $15.1 billion from $13.9 billion.

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