This summary is based on the third quarter fiscal 2008 earnings call conducted by D.R. Horton, Inc. (DHI) on August 5, 2008.
Management:
Vice-Chairman, President and CEO: Donald J. Tomnitz
EVP and Treasurer: Stacey H. Dwyer
EVP and CFO: Bill W. Wheat
Key Investors Issues
- EPS loss was $1.26 a share compared to $2.62 a share last year..
- Net loss was $399.3 million compared to a prior-year net loss of $823.8 million.
- Revenue dropped 44% to $1.43 billion.
Third Quarter Highlights
Net sales orders were 5501 homes, $1.2 billion compared to 8559 homes, $2 billion in the year ago quarter.
- Average sales price on net sales orders decreased approximately 5% from a year ago to $224,800.
- Homebuilding revenues were $1.4 billion compared to $2.5 billion in the year ago quarter.
- Average closing price was down 10.5% to $229,400 compared to $256,200 in the year ago quarter, reflecting a softer pricing environment compared to the prior year.
Gross profit margin on home sales revenue before inventory impairments and land option write offs was 10.1%.
This was a 660 basis point decline from home sales margin of 16.7% in the year ago period. The majority of the margin decline was due to core margin deterioration, resulting from price declines and an increased use of sales incentives relative to last year as reflected in 10.5% decrease in average closing price. The remaining margin decline from the year ago quarter was primarily due to the prior year quarter benefiting from a reversal of deferred revenue under FAS 66.
During third quarter impairment analysis, the company reviewed all projects in the company and determined that projects with a combined carrying value of $2.6 billion had indicators of potential impairment.
- The company evaluated these projects and determined that projects with a pre-impairment carrying value of $915 million were impaired.
- The company recorded inventory impairments of $323 million as a charge to cost of sales to reduce the carrying value of these impaired projects. 70% of these charges related to projects in California, West and Midwest regions. Of the remaining $1.7 billion of evaluated projects which were not impaired, approximately half are located in Florida, Arizona and California.
- The company recorded $7 million in write-offs of earnest money deposits and pre-acquisition costs related to land option contracts that it does not intend to pursue.
Homebuilding SG&A expense was 13.6% of total homebuilding revenues compared to 10.5% a year ago.
- The company reduced total SG&A expenses by approximately $73 million or 27% compared to the year ago quarter.
- The company will continue to manage SG&A levels relative to expected number of home closings and is making adjustments today to position the company to return to long-term goal of keeping SG&A at 10% of homebuilding revenues each fiscal year. The company will continue to focus on being the low-cost operator in the industry, which remains one of distinct competitive advantages.
- The company recorded approximately $11.7 million in interest expense. Since the company has continued to reduce both residential inventory and development activity, active inventory did not exceed homebuilding debt levels, so it expensed a portion of homebuilding interest incurred.
Financial Services operations remained profitable as the company has proactively adjusted expense levels to lower volumes and adjusted product offerings to the current restrictive mortgage environment.
- Financial Services pre-tax income was $9.4 million compared to $18.2 million in the year ago quarter.
- 90% of mortgage company''s business was captive, reflecting continued focus on supporting the homebuilder''s business.
- Company wide capture rate was approximately 59%.
- Average FICO score was 707 and average cumulative loan-to-value, LTV, was 92%.
- Product mix was essentially 100% agency eligible with government loans accounting for 65% of volume.
The company recorded a valuation allowance of $169 million, primarily for deferred tax assets created.
- The net remaining deferred tax assets of $519 million at June 30th are expected to be realized in fiscal 2008 and 2009 through net operating loss carry backs to tax year''s 2006 and 2007 including subsequent reversals of existing taxable temporary differences.
- Reported net loss was $399 million, or $1.26 per share. For the nine months ended June 30, 2008, the company reported a net loss totaling $1.8 billion or $5.81 per share.
Overall inventory decreased by approximately $340 million excluding impairments.
- 15,400 homes in inventory is consistent with the prior quarter as is spec home inventory of 7400 homes.
- Completed unsold homes decreased to 2900 at the end of June from 3200 at the end of March.
- Land and lot acquisition spending remains limited and the company continues to restructure land development spending in light of current absorption.
