D.R. Horton (NYSE:DHI), Ft. Worth, on Friday morning delivered an unexpectedly profitable quarter based on three key home building operating measures: closings, orders and backlog.
Horton reported a profit for its fiscal second quarter ended March 31 or$11.4 million ($0.04 per diluted share), well ahead of analyst expectations of a loss of $0.01 per share and of the $108.6 million loss (-$0.34 per share) recorded for the comparable quarter in 2009. The profit included $2.4 million in impairments and land option cost write-offs, compared to$48.1 million in the comparable quarter of 2009.
Shares of Horton were up more than 6.2% to $15.13 in late-morning trading Friday as the company appeared to be leading a modest home builder rally in an otherwise shiftless market. The rally later fizzled, sending all the public builders down except for M.D.C., which ended up six cents at $38.30, and Horton, which ended regular trading up 3.1% and gained another half percentage point to $14.76 after hours. The overall market tanked, with the Down down 158.71 (-1.42%) to 11008.61.
Home building revenue for the current quarter increased 16% from the 2009 quarter to $896.8 million, as homes closed increased 19% to 4,260 homes worth an aggregate $894.8 million, up from $770.7 million in the comparable period last year.
Net sales orders for the second quarter increased 55% to 6,438 homes worth an aggregate $1.3 billion, up from $844.5 million in the same quarter of fiscal 2009. The cancellation rate was 21%, down from 30% a year earlier and 26% at the end of the fiscal first quarter.
The increase in closings was driven by a 28% surge in the company's South Central region, which tallied 1,637 settlements. The East was up as well, by 23% to 422 closings, as was Midwest, up 18.6% to 249 and the Southeast, up 26.5% to 791. The West was up 8% to 766, but the Southwest was down from 422 homes closed in the 2009 quarter to 395 this year.
Orders were up across all regions, with the East up 132% to 673; the Midwest up 12% to 336; the Southeast up 81.5% to 1,300; the South Central up 69% to 2,515; the Southwest up 19.2% to 620; and the West up 17.3% to 994.
Backlog of homes under contract at March 31, 2010 increased 38% to 6,314 homes worth $1.3 billion, up from $963.0 million at March 31, 2009.
Gross margin on home sales increased 470 basis points to 18%, the company said. SG&A was up marginally, from $126.9 million in last year's quarter to $128.7 million this quarter.
The company's homebuilding unrestricted cash and marketable securities at March 31, 2010 totaled $1.8 billion. Home building debt-to-total- capitalization (net of cash and marketable securities) improved 1,200 basis points to 22.2%, the company said.
During the second quarter, the company repaid the outstanding principal of$130.9 million of its 4.875% senior notes at their maturity in January, and it redeemed the remaining $95.0 million of its 5.875% senior notes due 2013 in February. Also during the quarter, the company repurchased a total of $139.4 million principal amount of its outstanding senior notes. Fiscal year-to-date homebuilding debt reductions total $524.8 million. As of March 31, the company was carrying $2.55 billion in long-term debt on its balance sheet.
Horton also declared a quarterly cash dividend of $0.0375 per share, payable on May 24 to stockholders of record on May 14.
Donald R. Horton, chairman, said, "Our focus on providing affordable homes enabled us to take advantage of the spring selling season demand.
"Market conditions in the home-building industry are still challenging, with rising foreclosures, significant existing home inventory levels, high unemployment, tight mortgage lending standards, the expiration of certain government support for the housing and mortgage markets and weak consumer confidence," Horton continued. "However, new home inventory remains low, interest rates are favorable and housing affordability is near record highs ... We will continue to focus on providing affordable homes for the first-time buyer, controlling our costs and contracting for new communities with attractively priced finished lots while maintaining our strong balance sheet."
Carl Reichardt, senior home building analyst at Wells Fargo, was impressed. "This was a strong quarter with outperformance relative to peers on both orders and closings," he wrote in research alert. "DHI has been profitable for 2 quarters in a row and (excluding tax benefits) and has taken just $3.6MM in impairments over the last 2 quarters suggesting to us we could see a stabilization in book value. DHI's balance sheet has improved as well with debt declining by $358MM vs. last quarter and $316MM vs. year-ago levels."