DR Horton (DHI)

Q1 2012 Earnings Call

January 27, 2012 10:00 am ET


Bill W. Wheat - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Mike Murray -

Stacey H. Dwyer - Executive Vice President, Treasurer and In Charge of Investor Relations

Donald J. Tomnitz - Vice Chairman, Chief Executive Officer, President and Member of Executive Committee


Steven Bachman - RBC Capital Markets, LLC, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

David Goldberg - UBS Investment Bank, Research Division

Nishu Sood - Deutsche Bank AG, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Susan Berliner - JP Morgan Chase & Co, Research Division

Stephen Kim - Barclays Capital, Research Division

Michael R. Widner - Stifel, Nicolaus & Co., Inc., Research Division

Michael G. Smith - JMP Securities LLC, Research Division

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

James McCanless - Guggenheim Securities, LLC, Research Division

Alex Barrón - Housing Research Center, LLC

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division



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Good morning, and welcome to the D.R. Horton, America's Builder, the largest builder in the United States of America, First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Donald Tomnitz, President and CEO. Thank you. Mr. Tomnitz, you may begin.

Donald J. Tomnitz

Thank you, and good morning. Joining me this morning are Bill Wheat, Executive Vice President and CFO; Stacey Dwyer, Executive Vice President and Treasurer; and Mike Murray, Vice President and Controller.

Before we get started, Stacey?

Stacey H. Dwyer

Some comments made on this call may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about issues that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K, which is filed with the Securities and Exchange Commission. Don?

Donald J. Tomnitz

We're off to a strong start for fiscal 2012. We made $27.7 million in net income in our first quarter, and we are focused on maintaining profitability in each upcoming quarter. The spring selling season begins soon, and our sales and operational teams across the company are energized and prepared for increasing traffic and sales activity with homes available in inventory and a good supply of finished lots to meet the potential additional demand.

If 2012 is the first year of the U.S. housing recovery, we expect it to reflect uneven improvement across our operating markets with some markets experiencing increases in demand and others remaining weak. We remain flexible with a profitable business model at current demand levels but have the ability to increase our production in response to a stronger demand.

Although macroeconomic and housing conditions remain soft, we are cautiously optimistic for the remainder of 2012 after achieving almost a $50 million improvement in pretax income compared to the year-ago quarter. Mike?

Mike Murray

In the first quarter, our homebuilding operations generated pretax income of $25 million, and our financial services operations generated pretax income of $4.2 million. Income tax expense of $1.5 million primarily represents state income taxes.

Our net income for the quarter was $27.7 million or $0.09 per diluted share compared to a net loss of $20.4 million or $0.06 per diluted share in the prior-year quarter. Bill?

Bill W. Wheat

Our first quarter home sales revenues increased 16% to $884 million on 4,118 homes closed from $761 million on 3,637 homes closed in the year-ago quarter. Our average closing price for the quarter was up 3% compared to the prior year and was flat sequentially at $214,700. Don?

Donald J. Tomnitz

Net sales orders for the first quarter were up 13% from last year to 3,794 homes on a 3% decrease in active-selling communities. In the December quarter, our average sales price on net sales orders of $217,000 was up 3% compared to the prior-year quarter and down 1% sequentially. Our cancellation rate for the first quarter was 26%. Our sales backlog at December 31, 2011, increased 18% from the prior year to 4,530 homes or $975 million. Stacey?

Stacey H. Dwyer

Our gross profit margin on home sales revenue in the first quarter was 16.8%, up 120 basis points from the year-ago period. 100 basis points of the increase was due to cost improvements and decreased incentives and discounts. 60 basis points of the increase was due to a reduction in amortized interest and property taxes. Also contributing 40 basis points to the margin increase was a reduction in the cost of remaining development obligations for completed projects and collection of old development receivables in excess of previous estimates. Partially offsetting these increases was an 80-basis-point decrease related to costs for warranty and construction defect claims.

Sequentially, while incentives and discounts were flat, our gross margin improved 70 basis points, again primarily due to a reduction in the cost of remaining development obligations for completed projects and collection of old development receivables in excess of previous estimates. Bill?

Bill W. Wheat

Homebuilding SG&A expense for the quarter, which includes corporate overhead, was $119 million, essentially flat with the year-ago quarter, on a 13% increase in homes closed. As a percentage of homebuilding revenues, SG&A was 13.4% compared to 15.5% in the year-ago quarter, reflecting both the improvement in volume and our continued efforts to reduce costs.

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