M.D.C. joined the fall earnings parade this morning with news that revenues, sales prices, deliveries and margins all increased.

But those improvements didn’t necessarily meet the Street’s expectations. 

“We expect a modestly negative reaction by the stock today, as while third quarter orders and gross margins were both slightly above our estimates as well as investor expectations, in our view, third quarter earnings per share was solidly below our estimate and the Street, driven by continued labor issues, which impacted closings and SG&A leverage,” wrote J.P. Morgan’s Michael Rehaut. 

Rehaut remarked that M.D.C.’s results were pulled down by lower-than-expected home building revenue and resulting higher than expected SG&A, due to labor constraints impacting closings.  

But there were positives. Average sales price jumped $51,000 per home, or 14%, to $421,000. Order growth came in at 3%, above Rehaut’s -1% projection. The builder posted an 8% increase in sales pace, but community count fell 5%. Among thje regions seeing increases were Washington (48%), Utah (37%), California (12%), Colorado (4%), and Arizona (3%). Virginia, Maryland, Florida, and Nevada saw declines of 2%, 4%, 4%, and 29%, respectively.  

“As a result of improved year-to-date sales activity and price increases implemented in many of our subdivisions throughout the year, combined with a longer sale-to-close cycle time resulting from an increasing percentage of dirt sales, the dollar value of our backlog reached $1.18 billion at the end of the quarter, up nearly 50% from a year ago,” said Larry Mizel, MDC's Chairman and CEO, said in a press release. The increased number of units in production, both for us and the industry, has strained our subcontractor base, resulting in a lower backlog conversion rate, even against already tempered expectations.  However, we believe that the increased level of backlog also gives us a strong base for continued year-over-year revenue growth for the next few quarters.” 

M.D.C.’s gross margins from home sales improved 80 basis points year-over-year and 70 basis points sequentially from the 2015 second quarter to 17.3%. 

“During the 2015 third quarter, our pre-impairment gross margin percentage continued to increase both year-over-year and from the 2015 second quarter,” Mizel said. “When coupled with a robust increase in the average price of our homes delivered, this improvement drove our average pre-impairment gross margin per home closed for the quarter to more than $70,000, our highest amount since 2006.”