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D.R. Horton Inc. Reports Operating Results (10-Q)

April 23, 2012 | About:
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10qk

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D.R. Horton Inc. (DHI) filed Quarterly Report for the period ended 2012-03-31.

D R Horton Inc has a market cap of $4.87 billion; its shares were traded at around $15.06 with a P/E ratio of 59.2 and P/S ratio of 1.4. The dividend yield of D R Horton Inc stocks is 1%.

Highlight of Business Operations:

Revenues from home sales increased 27%, to $930.6 million (4,240 homes closed) for the three months ended March 31, 2012, from $733.0 million (3,516 homes closed) for the comparable period of 2011. Revenues from home sales increased 21%, to $1,814.9 million (8,358 homes closed) for the six months ended March 31, 2012, from $1,494.1 million (7,153 homes closed) for the comparable period of 2011. The average selling price of homes closed during the three months ended March 31, 2012 was $219,500, up 5% from the $208,500 average for the same period of 2011 which reflects more of a change in product mix rather than broad price appreciation. The average selling price of homes closed during the six months ended March 31, 2012 was $217,100, up 4% from the $208,900 average for the same period of 2011. During the three and six months ended March 31, 2012, home sales revenues increased in all of our market regions, primarily resulting from increases in the number of homes closed.

SG&A expense from homebuilding activities increased 3% to $127.5 million and 2% to $246.5 million in the three and six months ended March 31, 2012, compared to the same periods of 2011, while the number of homes closed increased 21% and 17%, respectively. As a percentage of homebuilding revenues, SG&A expense decreased 320 basis points to 13.6% and 260 basis points to 13.5% in the three and six-month periods ended March 31, 2012, respectively, from 16.8% and 16.1% in the comparable periods of 2011. The largest component of our homebuilding SG&A expense is employee compensation and related costs, which represented 63% of SG&A costs in the three and six-month periods ended March 31, 2012, and 57% and 58%, respectively, in the comparable periods of fiscal 2011. These costs increased by 16% to $80.6 million and by 12% to $156.5 million in the three and six months ended March 31, 2012, respectively, primarily due to an increase in the level of incentive compensation, the effects of which were partially offset by a decline in the number of employees. Our homebuilding operations employed approximately 2,450 and 2,560 employees at March 31, 2012 and 2011, respectively. A reduction in advertising costs also contributed to the decline in SG&A expenses as a percentage of homebuilding revenues.

West Region Homebuilding revenues increased 22% and 17% in the three and six months ended March 31, 2012, respectively from the comparable periods of 2011, due to an increase in the number of homes closed as well as an increase in the average selling price. The largest increases in closings volume occurred in our Seattle and Salt Lake City markets. The region reported pre-tax income of $7.7 million and $13.0 million in the three and six months ended March 31, 2012, respectively, compared to pre-tax losses of $11.4 million and $26.1 million for the same periods of 2011, primarily as a result of increases in revenues, gross profit and reductions in SG&A. The improvement in gross profit was due to an increase in home sales gross profit percentage for the six-month period, and was also the result of fewer inventory impairment charges and earnest money and pre-acquisition cost write-offs, which were $0.2 million and $0.5 million in the three and six months ended March 31, 2012, respectively, compared to $7.0 million and $12.1 million for the same periods of 2011. Home sales gross profit percentage decreased 80 basis points and increased 150 basis points in the three and six months ended March 31, 2012, respectively, compared to the same periods of 2011. As a result of the decrease in total SG&A expenses and increased revenues, SG&A expenses as a percentage of homebuilding revenues decreased by 480 and 390 basis points in the three and six months ended March 31, 2012, respectively, as compared to the same periods in the prior year.

Revenues from the financial services segment increased 42% and 19%, to $25.6 million and $46.6 million in the three and six months ended March 31, 2012, from $18.0 million and $39.2 million in the comparable periods of 2011. The volume of loans sold increased 26% and 12% in the three and six months ended March 31, 2012 and revenues from the sale of servicing rights and gains from sale of mortgages increased 42% and 16%, respectively. Loan sale revenue increased at a higher rate than loan sale volume primarily due to the period-over-period increase in loan origination volume and the resulting increase in closed loans and interest rate lock commitments (IRLCs) subject to fair value measurement. Loan origination fees increased 19% and 13%, reflecting the increases in the number of loans originated of 24% and 15% during the same periods.

At March 31, 2012 and September 30, 2011, we had net deferred tax assets of $816.4 million and $848.5 million, respectively, offset by valuation allowances of $816.4 million and $848.5 million, respectively. The realization of our deferred tax assets ultimately depends upon the existence of sufficient taxable income in future periods. We continue to analyze both positive and negative evidence in determining the need for a valuation allowance with respect to our deferred tax assets. A significant part of the negative evidence we consider is our three-year cumulative pre-tax loss position, which has declined from $445 million at September 30, 2011 to $209 million at March 31, 2012, and is largely the result of pre-tax losses incurred in fiscal 2009 as we were profitable in fiscal 2010 and 2011. If our current business trends continue, we expect to be out of the three-year cumulative pre-tax loss position before September 30, 2012. Other negative evidence supporting the need for a valuation allowance that we consider in our analysis is the overall weakness in the economy and the housing market and tight mortgage lending standards. As the amount of negative evidence has declined over the past twelve months, a growing amount of positive evidence has developed related to our financial results. We have generated pre-tax income for four consecutive quarters totaling $134.2 million, and we generated more pre-tax income in the current quarter than in any of the three previous quarters. We closed 4,240 homes and earned $42.3 million of pre-tax income during the three months ended March 31, 2012 and closed 8,358 homes and earned $71.5 million of pre-tax income during the six months ended March 31, 2012. The value of our net sales orders for the quarter and the value of our sales order backlog at March 31, 2012 increased 28% and 25%, respectively, compared to the prior year. Based on our sales order backlog of 6,189 homes at March 31, 2012 and our current sales pace, we expect to close more homes in the second half of fiscal 2012 than in the first half, and we expect to continue generating pre-tax income.

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