M/I Homes fell short of turning a profit in its first quarter, losing $8.3 million, or $0.45 per share. However, the Columbus, Ohio-based builder indicated that it had reason to believe that conditions are improving.
That loss was 70% less than what M/I lost in the same quarter of 2009. And sales were significantly improved, too, with 15% more contracts signed in the first quarter of 2010 compared with 2009. Unit backlog also was up by 12%, and its value was up more than twice that to 28%, borne by average sales prices that were up 14% over those achieved in 2009.
“We are very optimistic about our future,” CEO Robert H. Schottenstein said. Yet the builder was not so optimistic as to make predictions about when the company will return to profitability as other home builder executives have.
“We are not comfortable doing so,” Schottenstein said. “I think we are as focused on returning to profitability as any home builder in the United States. Having said that, we believe that the conditions are still pretty fragile.
“We are not comfortable projecting out given that we have not seen the stability in the markets where we are operating to give us confidence to make a reasonable projection on earnings guidance.”
What M/I executives were more excited to talk about are the company’s land-procuring activities, which they said are key to helping the company’s balance sheet ink go back to black.
“Obviously one of our greatest challenges and one of our greatest opportunities relates to tying up land in our communities,” Schottenstein said.
M/I Homes secured 750 lots in its first quarter, 59% in the Midwest (mostly in Chicago), 22% in Florida, and 19% in the mid-Atlantic. The company plans to spend $100 million on land this year and another $40 million on land development.
“We are cautious and prudent in our approach to buying new lots and new land,” Schottenstein said.
The company’s lot tally on March 31 was up only 4.2% over the same date in 2009, but it has boosted the number of lots under contract (versus owned) dramatically by 160%, from 954 to 2,479.
The company has successfully increased its absorption rate from 1.8 to 2.4 sales a month in each community, close to its goal of 2.5 in each. At the same time, community count has fallen.
However, adding communities is a strong goal for 2010. M/I Homes added 14 new communities in the first quarter, while closing six. And there are plans to open 20 more by year’s end, executives said. M/I is expected to have 110 communities open by the end of 2010, up 10% over 2009’s year-end.
CFO Phillip Creek offered some color on how the company’s markets have been performing of late:
The Midwest remains challenging, though there are some positive trends. M/I’s contracts were up 25% as the company grows market share.
New contracts in the mid-Atlantic region were up 10%, while deliveries were up 5% and sales prices were up 25%.
Raleigh, N.C.’s market, where M/I opened two new communities, is improving. Its gross margin there was higher than 20%.
Charlotte, N.C., remains challenging, yet sales for the quarter were higher than expected.
Washington, D.C., shows signs of stabilization in some submarkets.
In the meantime, M/I is quite happy about its recent move into the Houston market, where it expects to have one or two communities open by the end of the year.
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.