In what its CEO calls "the most difficult time in the history of the home building industry," M/I Homes reported on Thursday that it lost $58.7 million in the three months ended Sept. 30. Its quarterly revenue, $160.4 million, was 31.2% below the same period a year ago, when the builder reported a net loss of $16.8 million.
Through the first nine months of its fiscal year, the Columbus, Ohio-based M/I lost just under $175 million on sales that fell 29.5% to $457.5 million.
Bob Schottenstein, M/I's president and CEO, used a teleconference on Thursday afternoon not only to convey his company's financial performance but also to lend his voice to the growing number of home building executives who have been urging Congress to pass legislation to help revive housing demand through what Schottenstein called "meaningful" tax credits for all home buyers, as well as interest-rate buydowns. "We're in an unusually severe situation right now," said Schottenstein. He added, though, that such measures should be "short term," until home prices stabilize. When that will happen, though, is anyone's guess, he conceded.
Schottenstein painted a bleak picture of market conditions that "continue to be very challenging." In its latest quarter, M/I's new contracts were down 16.5% to 456 homes, and its deliveries fell 27.4% to 555. Its backlog plummeted by nearly 47% to 781 homes, and the value of that backlog receded 55.9% to $212 million as the average sales price for its homes fell back 16.8% to $272,000.
"Demand is weak. Consumer confidence is at or near a historical low. Unemployment is rising, and tightened mortgage lending standards, combined with the unprecedented turmoil in the financial markets, have further contributed to very difficult conditions for home builders," he said. "We remain in a primarily defensive operating mode—focusing on generating cash, reducing debt levels and expenses—and we have made considerable progress on a number of fronts."
The latest quarter was M/I's eighth consecutive reporting session during which it had positive cash flow. It reduced its debt, which at the beginning of 2007 was $410 million, to zero. Its debt-to-capital ratio during that period shrank to 32% from 44% from 2007. And the company will receive a tax refund of nearly $40 million for losses against previous years' earnings.
M/I continues to look for ways to pare its operations and assets. It workforce, at 590 employees, was down 35% from a year ago, and company officials anticipate more overhead reductions in the coming months. The builder lowered its lot count by 43% to 9,530 and reduced its community count by 13% to 138 from the third quarter of 2007. Phillip Creek, M/I's CFO, mentioned in passing that M/I would like to get its lot count down to 6,000 eventually. Between one-third and one-half of its communities' sales in the quarter were specs, said Creek, and M/I reduced its spec inventory by $11 million in the quarter. It now has 4,000 unsold finished homes for sale.
M/I took $43.5 million in impairment charges during its latest quarter, $27.8 million of which were for land it's building homes on and $11.7 million for land it has sold or intends to sell. (In the last nine quarters, M/I recorded $383 million in impairment charges.) Half of the builder's impairments in its latest quarter were for assets in the Midwest, where M/I continues to offer incentives and promotions to reluctant buyers. However, the company's Columbus market reported its first positive sales increase in 15 quarters. M/I also had its debut in Chicago during the quarter.
"Columbus, Indianapolis, and Cincinnati have been under siege since 2005, and I'd like to think we're incentived out in those markets," said Schottenstein. He noted during the teleconference that he drove through the company's 14 communities in Columbus the day before and didn't see evidence of encroachment from foreclosures. "I know it's there, but it's hard to determine the exact impact of foreclosures on day-to-day sales," he observed.
The builder's Florida communities saw their new contracts fall by more than 30% during the quarter and their closings decline by 40%. And its division in the Washington, D.C. market experienced a 50% dropoff in quarterly sales. A bright spot has been North Carolina, where M/I's new contracts in Raleigh doubled over the same quarter a year ago.
John Caulfield is a senior editor at BUILDER magazine.
Learn more about markets featured in this article: Columbus, OH.