A Long in depth and very recent article on Horton--and I am done my surfing for info for the night---I am now going to enjoy the Holidays!
TARRANT BUSINESS;SPECIAL
D . R . Horton keeps building success upon success
Mitchell Schnurman
05/18/98
The Fort Worth Star-Telegram
FINAL AM
Page 21
(Copyright 1998)
Don Horton makes success sound simple: grow the business, the profits
and the returns - and keep a tight lid on overhead.
"The basics," says the chief executive of D . R . Horton , a nationwide
home building company based in Arlington. "That's what we ask our
people to do."
Sort of like batting .350, or shooting par at Colonial.
Of course, reaching goals is never as elementary as setting them. That's
why no other organization has matched D . R . Horton 's record on the
Star-Telegram 25, the annual listing of the area's top-performing public
companies.
D . R . Horton , which ranked No. 5 in this year's Top 25, is the only
company to crack the local list for five consecutive years. Each spring
since 1994, when it became eligible for the competition, D . R . Horton
has racked up a top 10 finish, and twice it ranked No. 1.
What makes D . R . Horton 's record so notable is that the list criteria
make it tough to repeat; that's because the top 25 rewards companies
that are rebounding from an off year and raises the bar for companies that
have a record showing.
Half the indicators in the Star-Telegram 25 are based on growth
comparisons, matching the current year's results against the previous one.
That sets the table for turnarounds: Tandy Brands Accessories, for
example, barely eked out a profit in 1996 and didn't make the Top 25.
But when net income recovered to near the historical norm last year, the
profit surge pushed Tandy Brands to No. 6 on the chart, after D . R .
Horton .
Amid that backdrop, D . R . Horton has managed to stay on top.
"We do it by having record growth on top of record growth, and that's
how we've done it for 20 years," Horton says.
In 1978, Horton started his company with $3,000 and a focus on building
affordable homes in Fort Worth-Dallas. By 1987, the builder had $24
million in annual revenue and was looking beyond the Metroplex for more
growth potential.
That strategy of geographical diversification led to a continuing string of
acquisitions. Today, the company is building homes in 37 markets in 22
states, with the current hot spots including Fort Worth-Dallas, Atlanta,
Phoenix and Southern California.
As D . R . Horton 's revenues climbed, profits kept pace - a tough
balancing act in the home-building business. At the end of this year,
Horton says, the company's revenue will top $2 billion, thanks to internal
growth and another large acquisition.
Its profit margins took a hit last year, falling almost 14 percent because of
the costs associated with several acquisitions. But consider some other
key measures: Revenue surged 62 percent; net income was up almost 40
percent; return on equity approached 18 percent; and the stock price
almost doubled for the 12 months ended in March.
"For the past five years, D . R . Horton has been the best-run home
builder in the country - by far," says Jim Wilson, an analyst at Jefferies &
Co. in San Francisco. "It's been able to make acquisitions and integrate
them in a way that works."
Wilson says he was impressed by the company's tight rein on costs.
About five years ago, a landlord tried to raise the rent for D . R . Horton
's offices in Arlington, and Horton went searching for a better deal. He
found an empty shell of a building that had been financed by a failed
savings and loan, and he made a low-priced bid.
He landed the property, finished it out and continues to use it as
corporate headquarters.
That move reflects the company's zeal about cost-containment. Another
example: It often buys options on raw land, rather than purchasing it
outright, so it can minimize the risk of a downturn. That approach helped
a few years ago in the Washington, D.C., area.
When that market softened, the company finished a couple of small
subdivisions and refocused on its hotter cities.
"Our money follows the best margins," Horton says of the firm's strategy.
"Every month, we look at each market and send the extra funds to the
one that is generating the most profit."
John Hea, an analyst at Southwest Securities in Dallas, cites the
company's merit system for rewarding managers. He says that after an
acquisition, D . R . Horton will set the tone by cutting expense accounts,
eliminating company cars, even dropping mileage reimbursements. It
replaces those perks with a hefty bonus plan tied to profits.
"Some regional managers are making more than $250,000 a year," Hea
says. "It's amazing how that kind of incentive can change someone's
behavior."
Hea notes that among the six largest home-building companies in the
country, D . R . Horton had the highest return on equity last year, nearly
one-third higher than the first runner-up.
To make the big bucks, Horton says, managers must hit some high
targets: Revenues must grow 20 percent; gross profit margins must hit at
least 20 percent; the return on investment must be 15 percent or more;
and overhead cannot top 10 percent.
"We have a couple of fundamental beliefs that we call Hortonisms," the
company founder says. "One is that we should make money on every
home we build. Another is that we have to control overhead and drop
that savings to the bottom line. If you can't do those things, there's
probably not a place for you in this company."
Mitchell Schnurman, (817) 390-7821
schnurmanstar-telegram.com
PHOTO(S): 1, Glen E. Ellman
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