D.R. Horton is one down, three to go, toward its goal of becoming profitable for every quarter of its 2010 fiscal year.
The Fort Worth, Texas-based builder announced its first profitable quarter since the first quarter of 2008 today. The company revealed a net profit of $92 million, $0.56 a diluted share, well above the $0.14 a share that analysts predicted.
But what was more impressive is that the company would have been profitable even without the $149.2 million net operating loss tax refund that flowed onto its balance sheet for its first quarter ending Dec. 31.
"The goal this year is profit in each and every quarter," CEO Donald Tomnitz told analysts during the company's quarterly conference call. That's not going to be easy to do in the current quarter, he added. It would require converting 100% of the home builder's 4,136 homes in backlog into deliveries. Though, the bottom line should be helped by another tax refund check of $352 million from the expansion of the net operating loss provision to five years from two for one year only.
Boosted by the government's tax refund to home buyers, Tomnitz expects the company's third quarter, ending June 30, to be a profitable one. The company upped its spec home count in advance, giving buyers many choices of quick delivery homes for the tax break deadline.
Its fourth quarter, however, is expected to return to challenging, Tomnitz said, as the credit expires and a normalized market emerges.
Horton also posted sales order improvements, up 45% to 4,037 over the same quarter of fiscal 2009. But the company's greatest achievement, especially compared with other builders, was its ability to squeeze its sales, general, and administrative expenses down to 11.6% of revenue. Expenses went up a scant 1% in a year while revenues increased 23% and gross margin climbed to 17.1%, up 460 basis points.
Meanwhile, the company is growing the number of lots in its control, spending $200 million on finished lots in its first quarter. Tomnitz emphasized that most of its land holdings are options to buy rather than outright sales, giving the company the option to drop them should it choose.
The new lots, priced at the new market's lower rate, help the company build homes at a profit even today. "Every house is a profit for us," said Tomnitz. "We don't have loss leaders."
Tomnitz reiterated the company's focus on the entry-level home buyer, calling that audience the "heart of the market." "We are the king of entry level," he said. "We are well prepared to capitalize on the heart of the market."
Tomnitz also thanked the company's employees for the success, then challenged them to continue the good work.
"Now we have to do it quarter by quarter by quarter," he said.
"Our goal is to make money, profit," he continued. "Let's do it again. You're only as good as your last deal."