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Dallas Fed's Fisher, Philadelphia Fed leaders to retire in 2015

WASHINGTON — The outspoken president of the Federal Reserve Bank of Philadelphia will step down in March, shortly before the central bank is expected to raise interest rates for the first time since the recession, the regional bank said Monday.

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D.R. Horton falls most in five years after earnings decline

John Gittelsohn
(c) 2014, Bloomberg News.


D.R. Horton Inc., the largest U.S. homebuilder by revenue, fell the most in almost five years after saying it's increasing incentives to boost orders, reducing profitability as the broader new-home market stumbles.

Net income for the three months through June 30 fell to $113.1 million, or 32 cents a share, from $146 million, or 42 cents, a year earlier, the Fort Worth, Texas-based company said Thursday in a statement. The average estimate of 10 analysts was 49 cents a share, according to data compiled by Bloomberg.

D.R. Horton "is changing its operating strategy to target a certain pace of unit sales per community," Jay McCanless, an analyst with Sterne Agee & Leach Inc., said in a note to investors. "We see the downsides of this strategy as a higher likelihood of impairments, increased use of incentives and less predictability in quarterly results."

U.S. sales of newly built houses dropped 8.1 percent in June to a 406,000 annualized pace, the fewest since March and less than economists estimated, Commerce Department figures showed Thursday. May new home sales were revised downward to 442,000, 12.3 percent less than estimated. Home construction starts last month fell to an annual pace of 893,000, down 9.3 percent from May, led by a decline in Southern states, where D.R. Horton has been expanding.

D.R. Horton plunged almost 12 percent to $21.94 Thursday, the biggest decline since November 2009. The drop was the steepest in the 11-company Standard & Poor's Supercomposite Homebuilding Index, which fell 4.9 percent.

"The biggest impediment to the housing industry continues to be job growth," Chief Executive Officer Donald Tomnitz said on a conference call today. "Part-time workers are not looking for a house. They're looking for a full-time job."

D.R. Horton's home-sales gross margin in its fiscal third quarter was 20.7 percent, down from 21.4 percent a year earlier as the company increased incentives 90 basis points, or 0.9 percentage points. Margins will remain close to 20 percent as the company tries to push volume, Tomnitz said.

"Our number one focus is generating a 20 percent return on investment community by community," he said. "That requires us balancing our pace, our pricing, our incentives and our margin against volume to maximize, really, the return. And so, yes, we'll give some incentive to achieve a 25 percent sales increase."

Net orders rose to 8,551 homes worth $2.4 billion, a 25 percent increase in volume and 32 percent jump in value. The company's contract backlog, an indication of future sales, climbed 15 percent to 11,365 homes.

Homebuilding revenue rose to $2.1 billion in the quarter from $1.6 billion a year earlier. The number of completed home sales climbed 19 percent to 7,676.

PulteGroup Inc., the third-largest U.S. homebuilder by revenue, said today that second-quarter net income declined to 11 cents a share from 14 cents a year earlier. The results included 14 cents a share in charges resulting from insurance reserves and office-relocation costs. PulteGroup shares fell 3 percent to $19.24.

D.R. Horton also incurred $54.7 million in pretax charges in the quarter, related mainly to active communities in the Midwest region in Chicago, according to the statement. The charges reduced earnings by about 15 cents a share, Jack Micenko, an analyst with Susquehanna International Group, wrote in a note to clients Thursday.

In May, D.R. Horton acquired Crown Communities Inc., a closely held builder operating in Georgia, South Carolina and eastern Alabama, for $210 million. Last October, it paid $34.5 million for Regent Homes Inc., which builds in Charlotte, Greensboro and Winston-Salem, North Carolina.

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