10-QPeriod: Q3 FY2014

HORTON D R INC /DE/ Quarterly Report for Q3 Ended Jun 30, 2014

Filed July 24, 2014For Securities:DHI

Summary

D.R. Horton, Inc. (DHI) reported solid financial performance for the nine months ended June 30, 2014, with significant increases in homebuilding revenues and net income compared to the prior year. Homebuilding revenues grew 27% to $5.4 billion, driven by a 16% increase in homes closed and a 10% rise in average selling price. Net income for the nine-month period rose 14% to $367.3 million. The company also demonstrated improved operational efficiency, with net cash used in operating activities decreasing substantially from $1.1 billion to $575.1 million. Despite overall positive trends, the third quarter results showed a decrease in homebuilding pre-tax income and net income, largely due to a significant increase in inventory and land option charges ($56.8 million compared to $0.8 million in the prior year). Acquisitions, including Crown Communities and Regent Homes, contributed to revenue growth but also impacted gross margins due to purchase accounting adjustments. The financial services segment experienced a decline in revenues and pre-tax income, reflecting a more competitive market and a lower mortgage capture rate.

Financial Highlights

32 data points
Beta

Revenue

$2.15B

Net Income

$113.10M

5.3% Net Margin

EPS (Diluted)

$0.32

Total Assets

$9.72B

Cash & Equivalents

$617.30M

Free Cash Flow

-$325.00M

Financial Statements
Beta
Revenue$2.15B
Interest Expense$0
Net Income$113.10M
EPS (Basic)$0.32
EPS (Diluted)$0.32
Shares Outstanding (Basic)349.70M
Shares Outstanding (Diluted)367.80M

Key Highlights

  • 1Homebuilding revenues increased by 27% to $5.4 billion for the nine months ended June 30, 2014, compared to the prior year.
  • 2Net income for the nine months ended June 30, 2014, rose by 14% to $367.3 million.
  • 3Homes closed increased by 16% to 20,058 units for the nine-month period, with an average selling price increase of 10% to $269,300.
  • 4Net cash used in operating activities improved significantly, decreasing from $1.1 billion in the nine months ended June 30, 2013, to $575.1 million for the same period in 2014.
  • 5The company completed two strategic acquisitions: Regent Homes in October 2013 and Crown Communities in May 2014, which are expected to bolster market presence.
  • 6Despite overall revenue growth, home sales gross margins experienced a slight decrease in the third quarter of fiscal 2014 due to higher warranty costs and purchase accounting adjustments, though they improved year-over-year for the nine-month period.
  • 7Financial services revenues decreased by 11% for the nine months ended June 30, 2014, and pre-tax income declined by 40%, reflecting competitive market conditions and regulatory changes.

Frequently Asked Questions

For the nine months ended June 30, 2014, D.R. Horton reported a 27% increase in homebuilding revenues to $5.4 billion and a 14% increase in net income to $367.3 million, indicating strong top-line growth and improved profitability compared to the prior year.

The third quarter of fiscal year 2014 saw a decrease in homebuilding pre-tax income primarily due to a substantial increase in inventory and land option charges, which rose to $56.8 million from $0.8 million in the prior year's comparable quarter. Additionally, purchase accounting adjustments from recent acquisitions impacted gross margins.

D.R. Horton's balance sheet strengthened, with total equity increasing to $5.0 billion at June 30, 2014. The company also improved its leverage ratios, with the net homebuilding debt to total capital ratio decreasing to 34.4%. The conversion of convertible senior notes into equity also contributed positively to the capital structure. The company maintained a strong cash position of $538.5 million in its homebuilding operations.

The financial services segment experienced a downturn, with revenues decreasing by 11% and pre-tax income falling by 40% for the nine months ended June 30, 2014. This was attributed to a lower mortgage capture rate, increased competition, and rising general and administrative expenses driven by new regulatory requirements.

D.R. Horton is actively managing its inventory and land position. While growth in land and lot inventories has slowed in fiscal 2014, the company has increased its homes in inventory to capitalize on demand. They also utilize land and lot option contracts to control significant land positions with reduced capital investment, mitigating land ownership risks.