M.D.C. Holdings, Denver (NYSE:MDC), parent of Richmond American Homes, on Thursday reported a net loss of $28 million (-$0.60 per share) for the second quarter ended June 30, up from a loss of $3.7 million (-$0.08 pershare) in the prior-year quarter. The loss included impairments and write-downs of $11.2 million.

Analysts were expecting a loss of 32 cents per share, not including charges.

Revenues were down 34% to $215.7 million as home closings dropped 38% to 709 and average prices rose 5.7% to $290,800.

New orders were up 5% to 1,064 with an estimated aggregate value of $302 million, up from $281 million in last year's quarter. The average selling price of new orders rose 2.5% to $283,800. The cancellation rate rose to 29% from 25% in last year's quarter.

Active communities rose 31% from the 2010 second quarter to 176, up 18.9% from yearend 2010.

Backlog at quarter's end increased 28% year-over-year to 1,424 homes with a sales value of $433 million, up from $351 million a year earlier.

Lot count at quarter's end was 11,993 (9,036 owned, 2,957 optioned), down from 12,194 (8,035 owned, 4,159 optioned) at yearend 2010 and up from 10,932(7,326 owned, 3,606 optioned) at the end of last year's second quarter.

Gross margin fell to 13.1% from 18.1% in the 2010 second quarter on an effort to reduce older speculative inventory and an increase in land costs as the company sought and acquired finished lots in prime locations. SG&A fell to $53.6 million from $67.7 million but rose as a percentage of sales to 16.1% from 14% in last year's quarter. M.D.C. cut more than 100 employees from its workforce during the quarter and expects to save approximately $9 million annually. It incurred $1.2 million of related severance charges during the quarter.

M.D.C. ended the quarter with $1.4 billion in cash and marketable securities, down from $1.54 billion at the end of 2010. It listed long-term debt at $1.49 billion, down from $1.56 billion at the end of last year.

On July 7, M.D.C. completed a tender offer on approximately $237 million in senior notes, which will reduce annual interest incurred by approximately$14 million, partially offset by a loss of interest income on the cash used to extinguish the debt. Also, as a result of the tender offer, the Company expects to record an $18.6 million charge during the third quarter.

In prepared comments, M.D.C. chairman and CEO Larry Mizel indicated that the company's recent aggressive spec home strategy was ending. "As we look at the communities we already own, we see a clear need to focus more closely on our gross profit margins," said Mizel. "To start, we have changed our policy on the production of speculative homes, which have yielded margins significantly below those homes that are started with a buyer under contract. Going forward, in most of our markets, we will start very few speculative homes."

Mizel also said the company was going to back off on land acquisition. "Over the past two years, we have focused a significant amount of time on land acquisition, which has yielded a 31% year-over-year increase in active subdivisions at the end of the second quarter, setting the stage for top-line growth in the second half of 2011," he said. "We accomplished the increase in active communities both through land purchases in our existing markets and by expanding into the Seattle market through the acquisition of assets from SDC Homes in April. However, as our economy continues to display considerable weakness, it is difficult to justify a significant number of additional land acquisitions in the near-term."

Shares of MDC were trading up marginally at $20.95 amid another swoon in the overall markets and a sea of red among all the other builders stocks except NVR.

Michael Rehaut at J.P. Morgan Securities was not impressed. In a research note, he wrote, "As a result, we believe these results represent a net negative, as the better than expected orders are more than offset, in our view, by the lower than expected gross margins, which we note are the lowest in our universe so far among 2Q reports, while its 60 bps sequential decline compares to an average 30 bps rise for our universe. Moreover, while the company has taken certain positive steps regarding both gross margins and SG&A, at the same time, it noted that its gross margins in backlog are similar to those entering 2Q."

Adam Rudiger at Wells Fargo wrote, "While orders and closings were better than expected we expect gross margin will garner more attention. ... MDC attributed some of the decline to company's desire to flush some of its spec homes. However, land cost has also risen significantly as a percentage of sales price which we view as a result of overpaying for land as the company aggressively ramped up community count. With gross margin on homes in backlog unchanged from the beginning of the quarter, we don't foresee near-term expansion, limiting the company's ability to restore profitability."

In his investor note, Stephen East at Ticonderoga Securities wrote, "No matter how one cuts it, the income statement results were terrible. Conversely, the orders were solid, even a touch better than we had expected thanks to the strong community growth. Costs were very ugly with the gross margins less than our below consensus expectations, SG&A was higher and impairment charges reappeared. Thankfully though, to management's credit, they are changing course on specs and attempting to reign in SG&A costs."