Reston, Va.-based NVR, Inc. today (April 20) announced better-than-expected first-quarter results that nonetheless reflected the softness in the housing sector, with net income down 36% to $84.8 million from $132.5 million last year. Consolidated revenues for the first quarter were down 9% from last year to $1.09 billion.
New orders in the first quarter of 2007 increased 8% to 3,917 units, when compared to 3,633 units in the first quarter of 2006. New orders in the Mid Atlantic and Mid East regions increased 18% and 11%, respectively, when compared to the first quarter of 2006. The company said the Mid Atlantic region experienced an improvement in market conditions at the start of the quarter, however, market conditions slowed noticeably as the quarter progressed.
The cancellation rate in the first quarter of 2007 was 16% compared to 17% in the first quarter of 2006 and 20% in the fourth quarter of 2006. The Washington D.C. cancellation rate in the quarter was 22% compared to 26% in the first quarter of 2006 and 34% in the fourth quarter of 2006. Settlements decreased in the first quarter of 2007 to 2,700 units, 10% less than the same period of 2006.
Home building revenues for the three months ended March 31, 2007 totaled $1.075 billion 9% lower than the year earlier period. Income before tax from the homebuilding segment totaled $127.9 million, a decrease of 38% when compared to the first quarter of the previous year. Gross profit margins decreased to 20.6% in the 2007 first quarter compared to 27.3% for the same period in 2006. The company attributed the decline in gross profit margins to continued pricing pressure in many of its markets.
Land deposit impairments of approximately $12 million negatively impacted gross profit margins by 114 basis points in the current quarter.
NVR's backlog of homes sold but not settled at the end of the 2007 quarter decreased on a unit basis by 15% to 7,605 units from the same period last year. On a dollar basis, backlog dropped to $3.019 billion, a decline of 23% when compared to the same period last year.
Mortgage-closed loan production of $715 million for the three months ended March 31, 2007 was 3% lower than the same period last year. Sub-prime loans accounted for approximately 7% of the mortgage closed loan volume in the current quarter compared to 6% for the first quarter of 2006. Operating income for the mortgage banking operations during the first quarter of 2007 decreased 19% to $10.1 million from $12.5 million reported for the same period of 2006.
Margaret Whelan, the lead home building analyst at UBS, put out a research note stating that NVR's performance "at first blush" amounted to a "strong start" to the fiscal year but that the company's "outperformance will wane" as the year drags on. She credited the company's strategy of optioning land with contributing to the quarterly performance, noting that it took only a $12 million land impairment during the quarter.