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Text: 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.
Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, both of which are filed with the Securities and Exchange Commission.
drhorton.com and we plan to file our 10-Q early next week.
The D.R. Horton team delivered an outstanding third quarter, highlighted by a 78% increase in earnings to $3.06 per diluted share.
Our consolidated pre-tax income increased 81% on a 35% increase in revenues to $7.3 billion and our pre-tax profit margin improved 490 basis points to 19.4%.
Our homebuilding return on inventory for the trailing 12-months ended June 30 was 34.9% and our consolidated return on equity for the same period was 29.5%.
These results reflect our experienced teams and their production capabilities, our ability to leverage D.R. Horton scale across our broad geographic footprint and our product positioning to offer homes at affordable price points across multiple brands.
Housing market conditions remained very robust, and we are focused on maximizing returns and increasing our market share further.
However, multiple disruptions in the supply chain, combined with the improvement in economic conditions and strong demand for new homes have resulted in shortages in certain building materials and tightness in the labor market, which has caused our construction time to become less predictable.
As our top priority is to consistently fulfill our commitments to our homebuyers, we have slowed our home sales pace to more closely align to our current production levels and are selling homes later in the construction cycle, when we can better ensure the certainty of home close date for our homebuyers.
We expect to work through these issues and increasing our production capacity.
We started construction on 22,600 homes this quarter and our homes in inventory increased 44% from a year ago to 47,300 homes at June 30, 2021, positioning us to finish 2021 strong and to achieve double-digit growth again in 2022.
We believe our strong balance sheet, liquidity and low leverage positioned us very well to operate effectively through changing economic conditions.
We plan to maintain our flexible operational and financial position by generating strong cash flows from our homebuilding operations and managing our product offerings, incentives, home pricing, sales pace and inventory levels to optimize the return on our inventory investments.
Earnings for the third quarter of fiscal 2021 increased 78% to $3.06 per diluted share compared to $1.72 per share in the prior year quarter.
Net income for the quarter increased 77% to $1.1 billion compared to $630.7 million.
Our third quarter home sales revenues increased 35% to $7 billion on 21,588 homes closed, up from $5.2 billion on 17,642 homes closed in the prior year.
Our average closing price for the quarter was $326,100 and the average size of our homes closed was down 2%.
The value of our net sales orders in the third quarter increased 2% from the prior year to $6.4 billion, while our net sales orders for the quarter decreased 17% to 17,952 homes.
Our average number of active selling communities increased 1% from the prior year quarter and was down 3% sequentially.
Our average sales price on net sales orders in the third quarter was $359,200.
The cancellation rate for the third quarter was 17%, down from 22% in the prior year quarter.
As David described, in this very strong demand environment, our local teams are restricting the sales order pace in each of their communities based on the number of homes in inventory, construction time and lot position.
They continue to adjust sales prices to market on a community-by-community basis, while staying focused on providing value to our buyers.
Based on the stage of completion of our current homes in inventory, production schedules, and capacity, we expect to continue restricting the pace of our sales orders during our fourth fiscal quarter.
As a result, we expect our fourth quarter net sales orders to be lower than the third quarter.
However, we are confident that we will be well-positioned to deliver double-digit volume growth in fiscal 2022 with 32,200 homes in backlog, 47,300 homes in inventory, a robust lot supply and strong trade and supplier relationships.
Our gross profit margin on home sales revenue in the third quarter was 25.9%, up 130 basis points sequentially from the March quarter.
The increase in our gross margin from March to June exceeded our expectations and reflects the broad strength of the housing market.
The strong demand for a limited supply of homes has allowed us to continue to raise prices or lower the level of sales incentives in most of our communities.
On a per square foot basis, our revenues were up 4.7% sequentially, while our stick and brick cost per square foot increased 3.5% and our lot cost increased 1.7%.
We expect both our construction and lot costs will continue to increase on a per square foot basis.
However, with the strength in today's market conditions, we expect to offset any cost pressures with price increases.
We currently expect our home sales gross margin in the fourth quarter to be similar to or slightly better than the third quarter.
We remain focused on managing the pricing, incentives and sales pace in each of our communities to optimize the return on our inventory investments and adjust to local market conditions and new home demand.
In the third quarter, homebuilding SG&A expense as a percentage of revenues was 7.1%, down 80 basis points from 7.9% in the prior year quarter.
Our homebuilding SG&A expense, as a percentage of revenues, is lower than any quarter in our history and we remain focused on controlling our SG&A, while ensuring that our infrastructure adequately supports our business.
We have increased our housing inventory in response to the strength of demand and we expect the current constraints on our supply chain to ultimately subside.
This quarter, we started 22,600 homes, up 33% from the third quarter last year, bringing our trailing 12-month starts to 94,500 homes.
We ended this quarter with 47,300 homes in inventory, up 44% from a year ago.
15,400 of our total homes at June 30 were unsold, of which 500 were complete.
At June 30, our homebuilding lot position consisted of approximately 517,000 lots, of which 24% were owned and 76% were controlled through purchase contracts.
25% of our total owned lots are finished and at least 44% of our controlled lots are or will be finished when we purchase them.
Our growing and capital efficient lot portfolio is a key to our strong competitive position and it'll support our efforts to increase our production volume to meet homebuyer demand.
Our third quarter homebuilding investments in lots, land and development totaled $1.8 billion, of which $910 million was for finished lots, $540 million was for land development and $350 million was to acquire land.
$300 million of our total lot purchases in the third quarter were from Forestar.
Forestar, our majority owned subsidiary, is a publicly traded well-capitalized residential lot manufacturer operating in 55 markets across 22 states.
Forestar is delivering on its high-growth expectations and now expects to grow its fiscal 2021 lot deliveries by approximately 50% year-over-year to a range of 15,500 to 16,000 lots with a pre-tax profit margin of 11.5% to 12%, excluding their $18.1 million loss on extinguishment of debt recognized during the quarter.
At June 30, Forestar's owned and controlled lot position increased 91% from a year ago to 96,600 lots.
61% of Forestar's owned lots are under contract with D.R. Horton or subject to a Right of First offer under our master supply agreement.
Forestar is separately capitalized from D.R. Horton and had approximately $470 million of liquidity at quarter end with a net debt-to-capital ratio of 37.8%.
With a strong lot supply, capitalization and relationship with D.R. Horton, Forestar plans to continue profitably growing their business.
Financial Services pre-tax income in the third quarter was $70.3 million with a pre-tax profit margin of 37.3% compared to $68.8 million and 43.9% in the prior year quarter.
The year-over-year decline in our Financial Services pre-tax profit margin was primarily due to lower net gains on loans originated this quarter caused by market fluctuations and increased competitive pricing pressure in the market.
For the quarter, 98% of our mortgage company's loan originations related to homes closed by our homebuilding operations and our mortgage company handled the financing for 66% of our homebuyers.
FHA and VA loans accounted for 45% of the mortgage company's volume.
Borrowers originating loans with DHI Mortgage this quarter had an average FICO score of 721 and an average loan-to-value ratio of 89%.
First-time homebuyers represented 58% of the closings handled by the mortgage company this quarter.
At June 30, our multi-family rental operations had 11 projects under active construction and an additional four projects that are completed and in the lease-up phase.
Based on leased occupancy in our marketing process, we expect to sell two or three of these projects during the fourth quarter of fiscal 2021.
Our multi-family rental assets sold $458.3 million at June 30.
Last year, we began constructing and leasing homes as income-producing single-family rental communities.
After these rental communities are constructed and achieve a stabilized level of leased occupancy, each community is marketed for sale.
During the third quarter, we sold our second single-family rental community for $23.1 million in revenue and $11.4 million of gross profit.
At June 30, our homebuilding inventory included $303.1 million of assets related to 44 single-family rental communities, compared to $87.2 million of assets related to 10 communities at the beginning of the fiscal year.
We are pleased with the performance of our single and multi-family rental teams and we look forward to their growing contributions for our future profits and returns.
Our balanced capital approach focuses on being disciplined, flexible and opportunistic.
During the nine months ended June, our cash provided by homebuilding operations was $276 million even while we have reinvested significant operating capital to expand our homebuilding inventories in response to strong demand.
At June 30, we had $3.7 billion of homebuilding liquidity, consisting of $1.7 billion of unrestricted homebuilding cash and $2 billion of available capacity on our homebuilding revolving credit facility.
We believe this level of homebuilding cash and liquidity is appropriate to support the increased scale and activity in our business and to provide flexibility to adjust to changing market conditions.
Our homebuilding leverage was 16% at the end of June with $2.5 billion of homebuilding public notes outstanding and no senior note maturities in the next 12 months.
At June 30, our stockholders' equity was $13.8 billion and book value per share was $38.54, up 27% from a year ago.
For the trailing 12-months ended June, our return on equity was 29.5% compared to 19.9% a year ago.
During the quarter, we paid cash dividends of $72.1 million and our Board has declared a quarterly dividend at the same level as last quarter to be paid in August.
We repurchased 2.6 million shares of common stock for $241.2 million during the quarter for a total of 8.1 million shares repurchased fiscal year-to-date for $661.4 million.
Our remaining share repurchase authorization at June 30 was $758.8 million.
We remain committed to returning capital to our shareholders through both dividends and share repurchases on a consistent basis and to reducing our outstanding share count each fiscal year.
In the fourth quarter of fiscal 2021, based on today's market conditions, we expect to generate consolidated revenues of $7.9 billion to $8.4 billion and our homes closed to be in a range between 23,000 and 24,500 homes.
We expect our home sales gross margin in the fourth quarter to be in the range of 26% to 26.3% and homebuilding SG&A, as a percentage of revenues, in the fourth quarter to be approximately 7%.
We anticipate our Financial Services pre-tax profit margin in the range of 40% to 45% and we expect our income tax rate to be approximately 23.5%.
For the full fiscal year of 2021, we now expect consolidated revenues of $27.6 billion to $28.1 billion and to close between 83,000 and 84,500 homes.
This year, we have prioritized reinvestment of our operating capital to increase our housing and land and lot inventories to support higher demand.
Our other cash flow priorities remain balanced among increasing our investment in our multi and single-family rental platforms, maintaining conservative homebuilding leverage and strong liquidity, paying a dividend and repurchasing shares to reduce our outstanding share count by approximately 2% from the beginning of fiscal 2021.
In closing, our results reflect our experienced teams and production capabilities, industry-leading market share, broad geographic footprint and diverse product offerings across multiple brands.
Our results also illustrate the growth opportunity in front of us as we increase production capacity in response to homebuyer demand.
Our strong balance sheet, liquidity and low leverage provide us with a significant financial flexibility to capitalize on today's robust market and to effectively operate in changing economic conditions.
We plan to maintain our disciplined approach to investing capital to enhance the long-term value of the company, which includes returning capital to our shareholders through both dividends and share repurchases on a consistent basis.
As a result of these efforts, we are incredibly well-positioned to continue growing and improving our operations.
We will now host questions.

user
d r horton q3 earnings per share $3.06.
q3 earnings per share $3.06.
qtrly homes closed increased 35% in value to $7.0 billion on 21,588 homes closed.
qtrly consolidated revenues increased 35% to $7.3 billion.
qtrly net sales orders increased 2% in value to $6.4 billion on 17,952 homes sold.
homebuilding revenue for q3 of fiscal 2021 increased 35% to $7.1 billion from $5.2 billion in same quarter of fiscal 2020.
at june 30, 2021, company had 47,300 homes in inventory.
housing market conditions remain very robust.
have slowed our home sales pace to more closely align to our current production levels.
homebuyer demand exceeding our current capacity to deliver homes across all of our markets.
are also selling homes later in construction cycle when we can better ensure certainty of home close date for our homebuyers.
sees 2021 consolidated revenues of $27.6 billion to $28.1 billion.

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