In an earnings call with analysts Thursday, M/I Homes, Inc. (NYSE: MHO) CEO and president Robert Schottenstein said that despite the fact that 18% of his company's sales in the latest quarter included down payment assistance (DPA) program funding on FHA loans, he didn't see the loss of DPA as significant.
"At the risk of sounding idealistic, I think it's a good thing it's going away," he said. "It's largely been something that has accelerated us getting into this [downturn]. We think it's a small short-term negative and in the long run, it's helpful for the economy."
Also to the point of DPA, Schottenstein reminded his audience that the effect of losing DPA can't be measured by looking at how many people used it. Instead, the real measure is in how many people used it by necessity. "Some buyers used [DPA] even though they didn't really need to," he noted.
Earlier Thursday, the company reported a net loss for its second quarter of $94.1 million (-$6.72 per share), including $39.9 million in impairments related to land and joint ventures and a $58.0 million valuation allowance against deferred tax assets.
Revenues were down 38% as closings fell 37% to 478 and orders fell 23% to 530. The sales value of backlog of homes at June 30, 2008 was $254 million with backlog units of 880 and an average sales price of $289,000. The backlog of homes at June 30, 2007 had a sales value of $554 million, with backlog units of 1,694 and an average sales price of $327,000.
The company cut its community count to 138 from 161 at the end of last year's second quarter. Of those, 48% have been impaired. M/I reduced its lots owned and under contract to 13,020 from 19,641 at the same time last year. Owned lots fell to 11,306 from 17,623.
"Market conditions remain difficult for the homebuilding industry," said Schottenstein in the earnings release. "Demand is weak, consumer confidence is low and margins remain under pressure." When asked how the company would move forward strategically with sales, he underscored scrutiny at the community level. "It's a subdivision business. Where we have excess inventories, we'll move through them. We want to make certain that, when things turn, we aren't sitting with projects to move through," he said, adding that for the most part, "we like out land, we just don't like it right now."
In the meantime, he stated that management, "continues to make meaningful progress on reducing our debt, inventory and expense levels. During the second quarter, our homebuilding borrowings were further reduced to $10 million, and we lowered our owned lots by over 1,000. At quarter's end, our stockholders' equity stands at $466 million, with our debt to capital ratio at 31%."
Because of its covenant restrictions, Schottenstein announced M/I was forced to suspend dividends on both common and preferred stock. The company also is prohibited from repurchase of shares.
Shottenstein continued, "We anticipate that challenging conditions will continue for the balance of 2008 and, in all likelihood, through much of 2009. Recent federal legislation in support of housing is clearly a positive, although it is by no means a silver bullet."
The company did draw down cash, listing $9.1 million in cash/cash held in escrow on the balnace sheet at quarter's end compared to $16 million at the same time last year.