10-QPeriod: Q3 FY2012

HORTON D R INC /DE/ Quarterly Report for Q3 Ended Jun 30, 2012

Filed July 27, 2012For Securities:DHI

Summary

D.R. Horton, Inc. (DHI) reported a significant turnaround in its financial performance for the nine months ended June 30, 2012, compared to the prior year. Driven by an improving housing market, the company saw substantial increases in revenues, homes closed, and net sales orders across all its reporting regions. Notably, home sales gross margins improved significantly, contributing to a substantial increase in pre-tax income. A key driver of the reported net income was a substantial reduction in the deferred tax asset valuation allowance, leading to a significant income tax benefit. The company's financial services segment also demonstrated strong growth, with increased revenues and pre-tax income, largely due to higher mortgage loan sales. DHI highlighted a strategic focus on maintaining liquidity, managing inventory efficiently, and selectively investing in growth opportunities. While acknowledging ongoing market uncertainties, the company appears well-positioned to benefit from a continued housing recovery.

Financial Highlights

34 data points
Beta

Revenue

$1.15B

Net Income

$787.80M

68.5% Net Margin

EPS (Diluted)

$2.22

Total Assets

$6.66B

Cash & Equivalents

$904.90M

Free Cash Flow

-$112.90M

Financial Statements
Beta
Revenue$1.15B
Interest Expense-$6.90M
Net Income$787.80M
EPS (Basic)$2.47
EPS (Diluted)$2.22
Shares Outstanding (Basic)318.80M
Shares Outstanding (Diluted)360.00M

Key Highlights

  • 1Homebuilding revenues increased by 14% to $1.1 billion for the three months ended June 30, 2012, and by 19% to $2.9 billion for the nine months ended June 30, 2012, compared to the prior year periods.
  • 2Net sales orders surged by 25% in value to $1.4 billion for the quarter and by 27% to $3.5 billion for the nine months, indicating growing demand.
  • 3Home sales gross margins improved significantly, up 150 basis points to 18.0% for the quarter and 130 basis points to 17.5% for the nine months, reflecting better pricing and cost management.
  • 4The company reported a substantial income tax benefit of $715.6 million for the quarter and $712.5 million for the nine months, primarily due to a $716.7 million reduction in the deferred tax asset valuation allowance.
  • 5Net income for the nine months was $856.2 million, a dramatic increase from $36.0 million in the prior year, with diluted EPS at $2.47 compared to $0.11.
  • 6Financial services revenues increased by 42% to $33.8 million for the quarter and by 28% to $80.4 million for the nine months, with pre-tax income for the financial services segment also showing strong growth.
  • 7The company's liquidity position remains strong, with homebuilding cash and marketable securities totaling $1.2 billion at the end of the quarter.

Frequently Asked Questions

The primary driver for the substantial increase in net income was a significant reduction in the deferred tax asset valuation allowance, by $716.7 million. This resulted in a large income tax benefit, which greatly boosted the net income.

Homebuilding performance has significantly improved, with revenues up by 14% (quarterly) and 19% (nine months). This improvement is driven by a 9% increase in homes closed (quarterly) and 14% (nine months), coupled with a 5% and 4% increase in average selling prices, respectively. Additionally, home sales gross margins have expanded, and inventory impairments have decreased substantially.

D.R. Horton is encouraged by the improving sales trends and believes the company is well-positioned to benefit from a housing recovery due to its strong balance sheet and liquidity. However, they acknowledge that new home sales remain at historically low levels, and future results could be impacted by weakening economic conditions, restrictive mortgage lending, and variations in local housing market conditions.

The financial services segment is performing well, with revenues increasing by 42% in the quarter and 28% in the nine months. Pre-tax income for this segment also saw a significant rise of 107% for the quarter and 104% for the nine months, driven by higher mortgage loan sales and improved gains on the sale of servicing rights.