D.R. Horton logged the first year-over-year quarterly sales increase since March 2006 in its fourth quarter, leading CEO Donald Tomnitz to suggest that the worst is over for the Texas-based public builder.
In 2010, Horton will be profitable again and close more homes than it did in its 2009 fiscal year, Tomnitz told investors during its quarter and year-end conference call Friday.
It wasn’t profitable in its fourth quarter. The company lost $231.9 million, $0.73 a share, the company reported.
So confident is Tomnitz that a recovery is beginning that the company has launched its next strategy to prepare for such a rebound: Market domination by Horton. “One of the things we continue to do is maintain our big footprint across the United States," the CEO said.
Horton, with its $1.9 billion in cash, has an opportunity to increase its already large market share, said Tomnitz. “We are competing almost exclusively with undercapitalized builders. We don’t have to borrow a nickel from any bank to buy a lot.”
During the call, there were several mentions of “planting flags,” which means opening more communities in its markets in the next year. “I would be surprised if in each of our markets we didn’t add 10 or so new flags over the course of 12 or 15 months,” Tomnitz said. That process has already begun, with Horton tying up more than 200 land option deals, with 50 to 100 lots in each, during the last six months.
“We are not aggressive purchasers of land. We are an aggressive purchaser of option lot contracts,” Tomnitz said. “Yes, we would tie up the world if we could.”
Horton is buying only land it can build on and sell in a year to 18 months and on which the builder can turn an 18% to 20% profit, he added.
Tomnitz also gave a regional performance snapshot of the company. “Our strong markets include all our markets in Texas,” he said. “The other market that is doing extremely well for us is Seattle. I would call strengthened markets Southern California, Atlanta to a certain extent, and weaker [markets would be] Las Vegas, Chicago, and to a lesser extent, Florida and Phoenix.”
“It’s been a very long three years,” Tomnitz said, referring to the downturn. “We think we have properly positioned Horton going forward to take advantage [of the market opportunities]. Our motto is onward and upward.”
Teresa Burney is a senior editor with BUILDER and BIG BUILDER magazines.