D.R. Horton, Ft. Worth, Tex. (NYSE:DHI) early Thursday reported a profit for its third fiscal quarter ended June 30 of $28.7 million, $0.09 per diluted share. Analysts were expecting a gain of $0.06 per share. The results compare with a profit of $50.5 million, $0.16 per diluted share in last year's third quarter.
The results included $9.9 million in inventory impairments and land option cost write-offs and a $6.5 million loss on early retirement of debt.
Home building revenue for the quarter fell 30.3% from last year's quarter to$975.4 million as homes closed dropped 33% to 4,555 homes.
New orders declined slightly less than 1% to 4,874 homes; new order dollars were up 10% to $1.1 billion. The cancellation rate was 27%, down slightly from 28% in last year's quarter but up from 25% in the second quarter of this fiscal year.
Backlog rose 26.4% to 5,600 homes with an aggregate value of $1.2 billion, up 20% from the end of last year's quarter.
Gross margins minus charges rose 30 basis points from the prior quarter but were down 70 basis points from last year's quarter to 16.5%. SG&A as a percentage of sales dropped 510 basis points from the prior quarter but rose 130 basis points from last year's quarter to 11.7%. In dollars, SG&A declined to $113.7 million from $143.5 million.
During the quarter, Horton purchased the remaining $70.1 million of its 6% senior notes and redeemed the remaining $112.3 million principal amount of its 5.375% senior notes due 2012. It also repurchased more than 3.5 million common shares for $38.6 million.
Horton ended the quarter with $1.1 billion of home building unrestricted cash and marketable securities and net home building debt to total capital of 19.9%.
Donald R. Horton, D.R. Horton chairman, said the company expects to show a profit for the first fiscal year. "Market conditions in the home building industry are still challenging, with high foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards and weak consumer confidence, which are all contributing to weak housing demand," he said. "However, housing affordability remains near record highs, interest rates are favorable and new home inventory is still very low."
Michael Rehaut, home building analyst at J.P. Morgan, said in a research note that he believed that while Horton's balance sheet remained strong, "Overall, with EPS, orders, gross margins and charges roughly in-line our estimates, we view DHI's results as a fairly neutral event."
Stephen East at Ticonderoga Securities, who has a 'Buy' rating on Horton, took a brighter view. In his investor note, he wrote, "DHI's quarterly results illustrate why we are buying this equity. Even after taking charges, DHI had little difficulty turning in positive earnings on, quite frankly, still weak revenue streams. Given a growing revenue stream next quarter, we expect earnings to accelerate."
Adam Rudiger at Wells Fargo also was impressed: "DHI results reinforce our thesis that the company is better positioned than many of peers in its ability to operate profitably in the current depressed environment. Particularly strong this quarter was cost controls as SG&A fell 8% sequentially while sales increased 33%. Additionally, DHI continues to reduce debt, paying down $182MM this quarter resulting in a 10% sequential and 31% yr/yr decline in total debt."
