Public Company
Incorporated: 1978
Employees: 3,214
Sales: $4.40 billion (2010)
Stock Exchanges: New York
Ticker Symbol: DHI
NAICS: 236117 New Housing Operative Builders
D.R. Horton, Inc., is the largest homebuilder in the United States, operating in 26 states through 33 homebuilding divisions. D.R. Horton builds standardized homes that allow for alterations requested by the buyer. The company builds single-family detached homes and attached homes such as duplexes, triplexes, town homes, and condominiums. The company’s homes have an average closing sales price of approximately $206,000, with detached homes accounting for nearly 90 percent of its business. D.R. Horton also provides mortgage financing and title agency services through its financial services operations.
FOUNDER’S BACKGROUND
D.R. Horton’s swift rise in the U.S. home-building industry was orchestrated by the company’s founder, Donald Horton. Horton was raised in Marshall, Arkansas, a small town in the north-central region of the state where his father worked as a cattleman and a realtor. Instead of joining his father in either of his occupations, Horton left Marshall to pursue a different career. He enrolled at the University of Central Arkansas and decided to become a pharmacist, later transferring to the University of Oklahoma to pursue his degree. However, Horton never completed his studies. Instead, he left school in 1972 and returned to Marshall, where he joined his family’s real estate business.
“I did real well,” Horton remembered in a December 1999 interview with Professional Builder, “but the real estate business in Arkansas was seasonal.” Horton, as his career would later reflect, was exceptionally ambitious, an individual who started each workday at three in the morning. The housing market in Marshall was too small an arena for someone who would become one of the most prolific builders in the country. “I needed to do more in the winter,” he explained in his Professional Builder interview. “I wanted to get somewhere that, the more I put into it, the better I could do.”
Horton left the foothills of the Ozark Mountains in 1977 and moved to Fort Worth, Texas. He walked into a local builder’s office and found a position as a salesperson. Horton thrived in the sales environment, selling a house during his first day at work, but his passion for completing a sale soon led to frustration. Occasionally, he lost a potential sale because the buyer wanted something not included in the standard floor plans, extras such as additional kitchen cabinets or another doorway. His employer would not allow any custom changes, which was a typical response from a builder of standardized homes. The home-building industry was divided between companies that built standardized homes and those that offered custom-built homes. For standardized homebuilders, profitability depended on adhering to existing floor plans. Any changes cost more money, and the increase was not factored in to the original budget, defeating the operating strategy of a standardized homebuilder.
For Horton, the inflexibility of the system defeated his own strategy, which was to sell houses, not build them. “There’s nothing a buyer hates worse than to hear ‘No,’” he said in a February 28, 1994 interview with Forbes. He spent less than a year working for others in Fort Worth before beginning the entrepreneurial career that would lead to the creation of a multibillion-dollar business.
HORTON BUILDS HIS FIRST HOUSE: 1978
Horton set out on his own in November 1978 after persuading a bank to lend him the money to build his first house. The opportunity to show his approach to the homebuilding market arrived during the construction of this house, which was located in a Fort Worth subdivision. During the framing stage of construction, an interested buyer asked if a bay window could be added. Horton agreed, explaining that the addition would cost $500. The buyer immediately agreed, and Horton was on his way toward capitalizing on a new market niche. “I sold that house,” Horton remarked in his December 1999 interview with Professional Builder, “then went back to the bank for the money to build two, then four, then eight more.”
Horton’s exponentially paced success was exploited in a market segment he largely had created. Horton positioned himself in the middle of the industry, operating as a standardized homebuilder who was prepared and willing to make custom changes. There were few homebuilders in the late 1970s who characterized themselves as such. There were fewer still who operated on a national scale, as Horton eventually would operate. Central to the success of a construction strategy that allowed changes to standard floor plans was, in broad terms, astute, meticulous management.
As a salesperson, Horton felt most comfortable, but he excelled at creating a system that allowed the flexibility inherent in his company’s operating strategy to be profitable. Any alteration to existing floor plans required the builder to know precisely how much the addition would cost and to build the addition at that predetermined cost. Horton found that homebuyers were willing to pay more to move a wall or add another window, but he had to create a system that allowed for those changes without impinging on the company’s profitability. In the years ahead, as D.R. Horton grew increasingly larger, the task of presiding over a flexible construction strategy became commensurately more difficult. The company proved it was up to the task, however, as Horton’s vision of the homebuilding experience spread across the nation.
A BLUEPRINT FOR SUCCESS IS CREATED: 1981–89
For Horton, success was immediate. He built 20 houses in 1979 and 80 houses in 1980, beginning a phenomenal record of consistent growth. During the 1980s, the size of his company essentially doubled every year. In every fiscal quarter during the decade, D.R. Horton increased its revenue, its profits, and the number of homes the company built. Encouraged by the company’s consistency and by changes in the housing industry, Horton made an important decision in 1987, one that marked a turning point in the company’s development. For the first decade of its existence, D.R. Horton operated only in the Dallas-Fort Worth metropolitan area, but in 1987 Horton sensed the beginning of a trend toward consolidation in the nation’s housing markets. He resolved to turn his company into a major competitor on a national scale by leading the trend toward consolidation. In the years ahead, D.R. Horton looked beyond the Dallas-Fort Worth area, applying its leader’s system of flexible construction to housing markets throughout the country.
As the company expanded, it did so in a careful manner, adhering to its customer-driven philosophy. Typically, the company researched a new market for three to five years before entering it, then spent between $5 million and $10 million on approximately 50 home sites during its first year in the market. To determine what construction features buyers desired in a local market, the company’s salespeople visited other builders’ model homes and canvassed the visitors about what aspects of the homes they liked. “We kick the tires,” Horton remarked in his February 28, 1994 interview with Forbes. If the salespeople and the local architects the company employed noticed a trend, the feature was incorporated into one of the several types of homes designed for the market in question. As always, however, the company was amenable to other changes, agreeing to additions such as marble hallways, whirlpool baths, and decorative molding.
Although the company’s exponential growth during the 1980s was impressive, its financial and physical achievements during the 1990s established the D.R. Horton name as one of the nation’s premier builders. The company vaulted itself onto the national stage by assuming the posture of an aggressive acquisitor, becoming a leading consolidator in an industry where the top five builders increased their market share on an annual basis. Industry giants were being fashioned, and Horton intended to become one of those giants. He took his company public in June 1992, raising $40 million in an initial public offering (IPO) of stock. In 1993, when sales reached $190 million, the company ranked as the 24th-largest builder in the country. During the year, new divisions were opened in San Diego; Los Angeles; Austin, Texas; and Salt Lake City, Utah.
ACQUISITIONS ENGENDER GEOGRAPHIC DIVERSITY: 1994–99
D.R. Horton’s acquisition campaign began in earnest in 1994, when the company operated in 25 cities located in 11 states. Between 1994 and 1999, the company acquired 14 homebuilders, adding to its organizational structure division by division. The acquired companies generally continued to operate under their own names, but D.R. Horton presided over the collection of builders within its fold, orchestrating the activities of subsidiaries such as Joe Miller Homes, Arappco Homes, Regency Homes, Trimark Communities, SGS Communities, and Cambridge Homes. In some cases, the acquisitions were quite large, such as the 1997 purchase of the Torrey Group, which ranked as the leading homebuilder in Atlanta, the largest housing market in the nation at the time.
The D.R. Horton divisions created from the acquisitions were granted considerable control over their own operations, giving the company a decentralized corporate structure. In Arlington, Texas, however, certain aspects of the company’s overall operation fell under the control of a central command, particularly after a national accounts division was created in 1998. Through the company’s headquarters, all administrative functions of the divisions were conducted, including accounting and finance, human resources, and information technology.
By the end of the 1990s, D.R. Horton could boast 21 consecutive years of growth in revenues, housing units built, and profits for every single fiscal quarter. Revenues soared, increasing from $869 million in 1995 to $1.5 billion in 1997 and $3.1 billion in 1999, the year Professional Builder selected D.R. Horton as its “Builder of the Year.” By 2000, the company ranked as the third-largest builder in the country with 50 divisions in 23 states.
D.R. HORTON ECLIPSES ALL RIVALS: 2002–05
By D.R. Horton’s silver anniversary year, the company’s record of constant financial and physical growth remained intact. The company generated $6.7 billion in revenues in 2002, a total collected from closing the sale of 29,761 homes. Net income for the year eclipsed $400 million, a 57 percent increase over the profits recorded in 2001. In addition to record-breaking financial figures, the other great achievement of the year was the completion of the largest acquisition in the company’s history. In February 2002, D.R. Horton purchased El Segundo, California-based Schuler Homes, Inc., a designer, builder, and marketer of single-family attached and detached houses. The integration of Schuler Homes gave D.R. Horton dominant market positions in California, Colorado, Oregon, Washington, Arizona, and Hawaii.
D.R. Horton’s first quarter-century of business represented a phenomenal success story in the homebuilding industry. By allowing its divisions to act autonomously and to respond to local market conditions and tastes, the company became one of the strongest competitors in the nation. With the addition of Schuler Homes, D.R. Horton became the second-largest homebuilder in the country, trailing only Pulte Homes, Inc. The company leaped past Pulte midway through the decade, ending 2005 by reaching several remarkable milestones. D.R. Horton became the first builder to close more than 50,000 homes during a year. It also became the first builder to sell more than 50,000 homes in a year. The company, which held sway as the largest homebuilder in the nation, recorded a 61 percent increase in profits during the last quarter of the year, becoming the first builder to generate more than $500 million in net income during a quarter. D.R. Horton was growing at an electric pace that instilled confidence in the company’s management, leading Horton and his team to anticipate closing 100,000 homes annually by 2010.
AN INDUSTRY IN TATTERS: 2006–10
For D.R. Horton and the rest of the housing sector, market conditions quickly began to deteriorate. The nation was headed toward the worst financial crisis since the Great Depression. The collapse of the housing market led the way, resulting in staggering losses for D.R. Horton and virtually every other homebuilder, big or small. The first signs of distress appeared in mid-2006, when D.R. Horton cut its full-year earnings forecast by almost one-third. By the fall of 2006 the company’s rate of canceled orders was twice the historical average. By the spring of 2007 its quarterly profit was down 85 percent, plunging from $352 million to $51 million. By the summer of 2007 profits had disappeared. The company, which had cut its workforce by nearly 4,000 employees, posted an $823 million loss, the first time it recorded a quarterly loss in its history. It was a dizzying fall from the heights of 2005, but for D.R. Horton and the rest of the industry the worst was yet to come.
Financial institutions stopped lending money and the demand for new home construction plummeted, delivering a devastating blow to D.R. Horton’s financial results. After generating $14.7 billion in revenue in 2006, the company watched its business volume shrink to $3.6 billion by 2009. Losses mounted, reaching a staggering $2.6 billion in 2008 alone, resulting in more than $4 billion in losses during a three-year period. The company, which had employed more than 10,000 workers midway through the decade, cut its payroll to 3,214 employees by the end of the decade.
Despite the massive decline in its financial stature, D.R. Horton remained the country’s largest homebuilder at the end of the decade. In early 2010 the company recorded its first profitable quarter since 2007. Sales for the year climbed to $4.4 billion, stopping a three-year downward slide, and the company ended the year with a profit of $78 million. The positive results fanned hopes within the company’s management that the worst was over and ahead lay the days of robust growth to which it had become accustomed.
COMPANY PERSPECTIVES
Over 30 years ago, Donald R. Horton had a vision of livable and affordable new homes built with unmatched efficiencies and uncompromising quality. Of family traditions passed on to new generations. Of a business that would grow by making customers’ dreams a reality. That philosophy of creating value every step of the way was the company’s signature focus when Horton unveiled his first neighborhood in the Dallas/Ft. Worth area over three decades ago. As the company grew from a local homebuilder, to a regional homebuilder, to ultimately the largest homebuilder in the United States, that philosophy has never wavered.
| 1978: | Donald Horton builds his first home in Fort Worth, Texas. |
| 1987: | D.R. Horton begins to expand beyond the Dallas-Fort Worth market. |
| 1992: | Company completes its initial public offering of stock. |
| 1997: | D.R. Horton acquires the Torrey Group, the leading homebuilder in Atlanta. |
| 2002: | D.R. Horton acquires Schuler Homes, Inc., becoming the second-largest homebuilder in the country. |
| 2005: | D.R. Horton becomes the first builder in the country to close more than 50,000 homes in a year. |
| 2010: | After recording more than $4 billion in losses during the preceding three years, the company posts a profit for the year. |
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