D.R. Horton Inc. Reports Operating Results (10-Q)
D.r. Horton Inc. has a market cap of $3.37 billion; its shares were traded at around $10.6 with and P/S ratio of 0.9. The dividend yield of D.r. Horton Inc. stocks is 1.4%.DHI is in the portfolios of Arnold Schneider of Schneider Capital Management, John Buckingham of Al Frank Asset Management, Inc., John Keeley of Keeley Fund Management, Brian Rogers of T Rowe Price Equity Income Fund, Bruce Kovner of Caxton Associates, Charles Brandes of Brandes Investment, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
Highlight of Business Operations: We are one of the largest homebuilding companies in the United States, constructing and selling single-family housing through our operating divisions in 26 states and 72 markets as of June 30, 2010, primarily under the name of D.R. Horton, Americas Builder. Our homebuilding operations primarily include the construction and sale of single-family homes with sales prices generally ranging from $90,000 to $700,000, with an average closing price of $203,800 during the nine months ended June 30, 2010. Approximately 86% and 81% of home sales revenues were generated from the sale of single-family detached homes in the nine months ended June 30, 2010 and 2009, respectively. The remainder of home sales revenues were generated from the sale of attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs.
During the first half of fiscal 2010 there were indications of some stabilization of housing market conditions. The factors supporting the improved conditions included increased levels of affordability resulting from lower home sales prices; declines in the number of new homes available for sale; a low mortgage interest rate environment; and the federal governments monetary and fiscal policies and programs, including the homebuyer federal tax credit, which encouraged home ownership and home purchases. These market conditions supported our strategy of starting construction on more unsold homes to provide affordable housing and capture demand from first-time and move-up homebuyers. Having additional housing inventory available to close by June 30, 2010 resulted in significant increases in our net sales orders during the first half of fiscal 2010 from the comparable prior year period. During the three and nine-month periods ended June 30, 2010, our home closings and gross profit as a percentage of home sales revenues showed significant increases from the comparable periods in the prior year. These increases resulted in pre-tax income for the three and nine months ended June 30, 2010 of $46.3 million and $101.2 million compared to pre-tax losses in the comparable periods of the prior year.
Due to these uncertain market conditions, we have continued to evaluate our homebuilding and financial services assets for recoverability. Excluding cash and marketable securities, our assets whose recoverability is most impacted by market conditions include inventory; earnest money deposits and pre-acquisition costs related to land and lot option contracts; tax assets, both on amounts reflected as deferred and as a receivable; and owned mortgage loans. These assets collectively represent approximately 90% of our total non-cash assets at June 30, 2010. Our evaluations reflected our expectation of continued challenges in the homebuilding industry. Based on our evaluations, during the three months ended June 30, 2010, we recorded inventory impairment charges of $29.1 million and recorded additional reserves for losses of $3.1 million associated with mortgage loans held in portfolio and the limited recourse provisions on previously sold mortgage loans. The declines in inventory impairment charges and write-offs of earnest money deposits and pre-acquisition costs from prior years reflect the improvement in gross profit from home closings experienced during the three-month period ended June 30, 2010 compared to prior years. We will evaluate whether further impairment charges, valuation adjustments or write-offs are necessary on these assets in the coming quarters. Additional discussion of these evaluations and charges is presented below.
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