M.D.C Holdings, Inc. (NYSE: MDC), Denver, parent of Richmond American Homes, on Wednesday after market close reported net income of $50.6 million, or $0.79 per diluted share for the third quarter ended September 30, 2019. The gain was down 5% from $53.4 million or $0.86 per diluted share in the prior-year quarter. The gain fell short of analyst expectations for a profit of $0.87 per share.

Richmond American's Moonstone plan.
Richmond American's Moonstone plan.

Among the results:

  • Home sale revenues of $750.3 million, down 2% from $766.0 million
    • Unit deliveries up 8% to 1,713
    • Average selling price of deliveries down 9% to $438,000
  • Net income of $50.6 million, or $0.79 per diluted share, down 5% from $53.4 million or $0.86 per diluted share*
    • Effective tax rate of 19.5% vs. 20.8%
  • Gross margin from home sales of 18.8% versus 17.7%
    • No inventory impairments vs. $11.1 million
  • Selling, general and administrative expenses as a percentage of home sale revenues ("SG&A rate") of 12.4% vs. 10.9%
    • $9.8 million of stock based compensation expense versus $2.4 million
  • Dollar value of net new orders up 50% to $871.7 million from $581.2 million
    • Unit net orders increased 58% to 2,036
    • Monthly sales absorption pace increased 34% to 3.6
    • Average selling price of net orders down 5% to $428,000

* Per share amount for the 2018 third quarter has been adjusted for the 8% stock dividend declared and paid in the 2019 first quarter.

2019 Outlook – Selected Information

  • Backlog dollar value at September 30, 2019 up 16% year-over-year to $2.10 billion
    • Estimated gross margin from homes in backlog at September 30, 2019 slightly higher than 2019 third quarter closing gross margin of 18.8%
    • Backlog conversion ratio (home deliveries divided by beginning backlog) for the fourth quarter of approximately 50%
    • Average selling price for fourth quarter unit deliveries estimated at approximately $450,000
  • Active subdivision count at September 30, 2019 of 190, up 20% year-over-year
  • Quarterly dividend of $0.30 ($1.20 annualized) declared in October 2019

Larry A. Mizel, MDC's chairman and CEO, stated, "MDC delivered another strong performance in the third quarter of 2019, generating net income of $51 million, or $0.79 per diluted share. Net new orders increased 58% year-over-year on a sales pace of 3.6 homes per community per month. The sizable demand we experienced during the quarter led us to raise prices at a majority of our communities. We believe that these price increases reflected marketplace conditions, as the sales pace in September remained at a healthy 3.3 homes per community for the month."

Mizel continued, "We continue to focus our efforts on the more affordable segments of the market, as demand for lower priced homes remains strong across our geographic footprint. We believe this trend will continue for some time given the widespread lack of affordable housing and the demographic shifts occurring in this country."

Mizel concluded, "We have experienced remarkable order growth this year and have done so without the use of heavy discounting or changing our approach to speculative inventory. Our company's long-term strategy focuses on limiting risk by adhering to a built-to-order model with the objective of maximizing the value of each lot. We believe this strategy, coupled with our industry leading dividend payout, leads to superior risk-adjusted returns for our shareholders over time."