DR Horton Returns to Profit

Homebuilder D.R. Horton (DHI) reported pre-tax income of $42.8m for its fiscal year Q110, which ended Dece. 31, 2009. It marks a significant improvement from the $61.3m loss during the same quarter a year earlier. Additionally, net sales orders are up 45% from the year ago quarter – an indication of growing demand for new homes. The Fort Worth-based builder also said it will receive a $149.2m tax benefit during FYQ110 and an additional $352m tax refund in FYQ210 as a result of the temporary extension of net operating loss (NOL) carryback time limits. The law extending the homebuyer tax credit also added a provision that extends the time companies can recoup taxes paid in profitable years after unprofitable periods. The law lets a company that made money and paid taxes on those profits in a past year obtain a tax refund if the company loses money in another year. While the law applies to all US businesses, HousingWire sources have said it’s most applicable to home builders. Other builders like Lennar (LEN) that recently reported quarterly profit announced similar tax refunds. KB Homes (KBH) avoided a $91m loss in its fiscal year Q409 that ended Nov. 30 because of the NOL carryback benefit. “Our homebuilding SG&A [selling, general and administrative expense] dollars increased only 1% from the year ago quarter while homebuilding revenues increased 23%, bringing our SG&A as a percentage of homebuilding revenues down to 11.6%,” said board chairman Donald Horton. “Our balance sheet remains strong with a homebuilding cash balance of $1.9bn and net homebuilding leverage improving to 28.0%.” Net sales increased 45% year-over-year to 4,037 homes, while closings in the quarter were up 36% to 5,529 homes during the quarter. The gross margin on home sales increased 160bps to 17.1%. The builder will pay a quarterly cash dividend of $0.0375 per share on Feb. 25 to stockholders of record on February 16, 2010. Horton said net sales orders are up 45% from the year ago quarter and the builder’s continued focus on entry-level homebuyers allowed it to take advantage of the surge in demand from the homebuyer tax credit, which he said will benefit the company’s spring selling season. “Market conditions in the homebuilding industry are still challenging…However, new home inventory remains low, interest rates are favorable and housing affordability is near record highs,” Horton said. “We will continue to focus on providing affordable homes for the first-time buyer, controlling our costs, contracting for new communities with attractively priced finished lots and maintaining our strong balance sheet.” Write to Austin Kilgore. The author held no relevant investments.

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