D.R. Horton maybe the only builder expecting its number of communities may rise in 2009, due to its enviable cash position.
In the company's 1Q2009 earnings call, CEO Donald Tomnitz said--and verified when listeners were skeptical and suspected a note of sarcasm--that it will see an increase in the number of communities based on potential deals that are in the works.
"Banks are now coming to us, mainly because we have the cash to put the vertical construction on the ground, which not many builders do--especially the privates. So as a result, in a number of markets, a number of banks are coming to us to work through their lot position for them," he said.
Analysts reporting before and during the call congratulated Horton executivess on a "nice" quarter, pointing to low impairments and strengthened liquidity. Yet while Horton, CFO Bill Wheat, and treasurer Stacey Dwyer accepted the kudos, they all cautioned that the economic outlook is weak and their focus is to return to a profitable, if not neutral, basis for the company.
The company has a cash balance of $1.9 billion, allowing for executives to hold their heads high and make positive statements about possible bank deals; while $621.7 million of that total came from federal tax refunds, an additional $817.6 million was realized through operating activities in 1Q2009. Tomnitz said the company is in a solid position to weather the downturn, adding that "the balance sheet is the strongest it has ever been."
During its first quarter, the company repurchased $136.1 million of the principal amount of its outstanding notes for a total purchase price of $129.7 million, plus accrued interest. Subsequent to Dec. 31, it repaid the outstanding principal of $460 million of its 5% and 8% senior notes, which had maturity dates of Jan. 15 and Feb. 1, respectively.
There were no cash borrowings outstanding on the company's revolving credit facility at Dec. 31, 2008, Dwyer pointed out.
The company reported a net loss for its first fiscal quarter ended Dec. 31 of $62.6 million, which included $56.2 million in pre-tax charges--down from a net loss of $128.8 million for 1Q2008. Revenues for 1Q2009 totaled $900.3 million, compared to $1.7 billion in 1Q2008, and home closings totaled 4,068, compared to 6,549 homes for the same period a year ago.
The company's sales backlog of homes under contract at Dec. 31 was 4,006, compared to 8,138 homes at the close of 1Q2008. Net sales orders for the quarter totaled 2,777, compared to 4,245 for the same quarter of fiscal 2008. The cancellation rate for 1Q2009 was 38%, a positive sign according to Tomnitz because the rate is stable.
Although Tomnitz said that specs are a core part of the company's business model, he acknowledged that Horton's spec count is higher than he would like to see. Currently, the builder has an inventory of 10,700 homes, with 43% of homes sold in 1Q2009 being spec homes.
While Horton said the company is seeing a lot of interest in deals with its land bank, its own land position has the company looking at land deals from time to time. However, said Tomnitz, "The return on our land deals where we would have to cash out a land tract are extraordinarily high, and we would have to have a return of our money within a very short period of time, so it's a much lower risk profile today."
The company will continue to tread lightly in the upcoming quarters, hoping that a return of consumer confidence and lending occurs sooner rather than later.