D.R. Horton, Inc.
D.R. Horton, Inc.
Sales: $6.52 billion (2002)
Stock Exchanges: New York
Ticker Symbol: DHI
NAIC: 236115 New Single-Family Housing Construction (Except Operative Builders)
D.R. Horton, Inc., is one of the largest homebuilders in the United States. The company operates through more than 50 divisions in more than two dozen states. D.R. Horton builds standardized homes that allow for alterations requested by the buyer.
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 December 1999 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, the base of his real estate empire that would flourish in the 1990s. In 1977, however, Horton just needed a job. He walked into a local builder’s office and found a position as a salesperson. Horton thrived in the sales environment—he sold a house on 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 home-builders, 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 Forth Worth before beginning the entrepreneurial career that would lead to the creation of a multi-billion-dollar business.
Horton set out on his own in November 1978 after convincing 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 his first 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.
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.
An Industry Giant Emerges in the 1990s
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 acquis-itor, 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 on of those giants. He took his company public in June 1992, raising $40 million in D.R. Horton’s initial public offering 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.
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.
We are able to penetrate our markets by offering a wide variety of products, ranging from entry-level production homes, to customized production homes, to first- and second-time move-up homes, to active adult homes in age-restricted communities. We are prepared to always say “Yes!” to our home buyers, at all price levels, by offering them custom changes to their homes. This is both a profitable market niche for us as well as a strategy which affords us a marked advantage over our competitors.
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 in the 21st Century
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 home building 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 home-builder in the country, trailing only Pulte Homes, Inc. Although the company announced it did not intend to complete any acquisitions in 2003, its dedication to growth remained unchecked. In the years ahead, D.R. Horton promised to figure as a prominent competitor in many of the nation’s housing markets, with its legacy of success suggesting a dominant future for the Horton-led empire.
CH Mortgage Company I Ltd.; CHI Construction Company; Continental Homes Inc.; D.R. Horton-Emerald Ltd.; Schuler Homes, Inc.; DRH Cambridge Homes, Inc.
Centex Corporation; Lennar Corporation; Pulte Homes, Inc.; KB Home Corporation.
- Donald Horton builds his first home in Fort Worth, Texas.
- D.R. Horton begins to expand beyond the Dallas-Fort Worth market.
- The company completes its initial public offering of stock.
- D.R. Horton acquires the Torrey Group, the leading homebuilder in Atlanta.
- D.R. Horton acquires Schuler Homes, Inc., becoming the second-largest homebuilder in the country.
Cain, Christy L., “D.R. Horton-Schuler Merger Would Create Home-Builder Giant,” Pacific Business News, October 26, 2001, p. 18.
LaFreniere, Andrea, “D.R. Horton Scours the Map for New Conquests,” Professional Builder, September 1994, p. 98.
Lurz, William H., “Horton Grows by Acquisitions, Careful Expansion,” Professional Builder, November 1997, p. 44.
McCune, Heather, “D.R. Horton Inc. the Aggressive Acquisitor,” Professional Builder, December 1999, p. 52.
McLaughlin, Tim, “Texas Home Builder Plots Invasion,” St. Louis Business Journal, November 28, 1994, p. 1A.
Richmond, Iris, “The Producers,” Builder, May 2002, p. 33.
Sullivan, R. Lee, “Just Say Yes,” Forbes, February 28, 1994, p. 84.
—Jeffrey L. Covell