D.R. Horton, Dallas (NYSE:DHI) on Tuesday morning reported net income for its third fiscal quarter ended June 30, 2010 of $50.5 million, or $0.16 per diluted share. The quarterly results, which were in line with analyst estimates, included $30.3 million in impairments and land option cost write-offs, the majority of which related to communities in Illinois. In the same quarter of fiscal 2009, the net loss was $143.8 million (-$0.45 per diluted share).

Horton shares were down 1.4% at $11.09 during the opening minutes of trading on the NYSE.

Home building revenue for the third quarter of fiscal 2010 increased 51% to $1.4 billion, as homes closed increased 60% to 6,805 homes with an aggregate value of $1.38 billion, up from from $896.6 million in the prior-year quarter. Average closing price, however, was down to $203,000 from $215,000 in the 2009 quarter.

New orders declined 3% to 4,921 homes worth $1.0 billion, compared to 5,089 homes worth $1.1 billion in the same quarter of fiscal 2009. The cancellation rate the quarter was 28%.

Backlog at quarter's end was 4,430 homes with a value of $954.4 million, down from 5,430 homes and $1.1 billion on June 30, 2009. During the quarter, Horton reduced the number of homes in inventory by 3,100, contributing to cash provided by operating activities of $159.3 million. It was unclear whether that 3,100 was primarily spec inventory.

The company did not report its land position.

Gross margin improved 590 basis points to 17.2%. SG&A, at $143.2 million, came in at 10.4% of sales, an improvement of 430 basis points from the prior-year quarter.

The financial services unit posted operating income of $8.9 million, up from $2.8 million a year earler.

The company ended the quarter with $1.7 billion in unrestricted cash and marketable securities. During the quarter, Horton repurchased $345.2 million of its outstanding senior notes, resulting in an $8.3 million loss on early retirement of debt. Fiscal year-to-date home building debt repurchases and redemptions total $883.6 million. After June 30th, the company repurchased another $53.3 million in outstanding senior notes. The company listed $2.2 billion in notes payable on its balance sheet at the close of the quarter. Debt to total capitalization was down 1,320 basis points to 17.5%.

Donald R. Horton, chairman, pointed to an apparent bright spot in his prepared statement. "As we expected, market conditions in the homebuilding industry have become more challenging after the expiration of the tax credit at the end of April," he said. "Our net sales orders declined significantly in May and improved modestly in June and July."

One analyst, Stephen East of Ticonderoga Securities, commenting on the order numbers in a research note, said, "The Southeast region was up 33%, while the Southwest was down 27%. The South Central region, which contains Texas, was down only 4.9%. We believe we now know who took other builders' sales."

Buck Horne at Raymond James wrote, "Management did offer a glimmer of hope that buyers are slowly reemerging, highlighting orders have improved 'modestly' in June and July. Given D.R. Horton's high mix of entry level buyers, we believe this commentary supports our view the next up-cycle will begin with first-time buyers."

Carl Reichart at Wells Fargo wrote, "This quarter, while mixed, contains more good news than bad. DHI continues to move through units, control SG&A and post profitability. That said, we believe sale of spec depressed gross margins." He added, "We were pleased to see the company reduce debt by $345MM this Q (net debt/cap 17% as of 6/30) and another $53MM post-Q close."