M/I Homes reported a third quarter earnings per share (EPS) increase of $0.51 and a net income of $15.6 million, each below analyst projections.
"MHO reported 3Q EPS of $0.51, below our $0.61E and the Street’s $0.57 consensus," he writes." Downside to our estimate was driven by higher SG&A of 13.5% vs. our 12.8%E, which represented $0.05/share of downside, while lower revenue and a higher tax rate each represented $0.02/share of downside. This was only partially offset by slightly higher gross margins of 20.8% vs. our 20.7%, which drove $0.01/share of upside."
Homes delivered by MHO were up 1% when compared to 2014’s third quarter–to 994 from 985–while new contracts rose 11%, from 2,890 in 2014 to 3,196 in 2015. Robert H. Schottenstein, MHO’s CEO and president, says he’s pleased with the third-quarter earnings.
“A number of factors contributed to our improved profitability including a 9% increase in our average closing price, an 80 basis point improvement in gross margin, and improving returns as third quarter operating margin increased to 8.3% from 7.5% a year ago,” he says.
In addition, Schottenstein notes, “we have opened 42 new communities this year and remain on track to increase our community count by 15% in 2015.”
The number of closings missed Rehaut’s projection, but he's not worried about it moving forward.
“Driving the earnings miss was lower than expected closings, which we view as a temporary issue, and higher SG&A mostly as a result of lower leverage due to the lower level of closings,” he writes. “We expect only a modestly negative reaction by the stock today, as while EPS was solidly below Street consensus and our estimate, at the same time, and more importantly, in our view, orders and gross margins were roughly in-line with our estimates and we believe investor expectations.”
“We maintain our relative Neutral rating,” Rehaut adds, “as we believe MHO’s discounted valuation appropriately reflects our outlook for below average operating margins to persist over the near to medium term.”