MDC Holdings joined the earnings parade with gross margins of 16.6% and order growth of 4%, which fell below J.P. Morgan’s 13% projection.
“The rise in orders was driven by average community count up 2%, below our 6% estimate, while absorption also increased 2%, below our 7% estimate,” J.P. Morgan’s Michael Rehaut wrote.
Margins, which rose 120 basis points (bps) sequentially but fell 50 bps year over year, were above J.P. Morgan’s 16.3% estimate.
“The sequential improvement was driven by a higher percentage of dirt starts as well as an increase in gross margin from spec due to decreased incentives, while the year-over-year decline was driven by higher land and construction costs, partially offset by a 70 basis point improvement in interest amortization,” Rehaut wrote.
Larry A. Mizel, MDC's Chairman and CEO, explained the margin improvement. “During the 2015 second quarter, we began to realize the benefit of our effort to reduce speculative inventory levels as our gross margin percentage was up 120 basis points sequentially, resulting primarily from the improved mix and margins on the speculative homes we closed,” he said in the company release. “Additionally, at the end of the quarter, our speculative inventory levels remained relatively low, down per active community by 39% year-over-year.”
Here are some highlights from the quarter:
- Ending backlog dollar value of $1.13 billion, up 48%
- Dollar value of net new orders of $629.7 million, up 16%
- Home sale revenues of $461.7 million, up 7% from $430.7 million
- Up 120 basis points from the 2015 first quarter
- Net income of $20.0 million, or $0.41 per share, vs. $21.5 million, or $0.44 per share
- Orders in Washington, Florida, California, and Utah rose 47%, 35%, 32% and 15%, respectively, while Colorado was flat. Virginia, Maryland, Nevada and Arizona fell 33%, 21%, 17% and 5%, respectively.
- Cancellations rose slightly to 19% from 18% last year and 17% last quarter.
In the release, Mizel expressed satisfaction that the company was able to maintain a 2015 second quarter sales pace consistent with the same quarter from a year ago, despite price increases of 11% year-over-year to $425,000.
“We experienced a decline in our active subdivision count during the 2015 second quarter, driven mostly by higher than expected demand resulting in the close out of communities earlier than expected and delays in opening new communities in certain markets,” Mizel said. “However, we expect our active subdivision count to rebound as new subdivisions come online during the back half of the year. With our backlog dollar value over $1.1 billion and overall liquidity of $840 million, we believe we are well prepared for to close out 2015 strongly and position the company for continued growth in 2016.”