NVR, Inc. (NYSE: NVR), in Reston, Va., on Thursday reported net income for its first quarter ended March 31, 2020 of $175,703,000, or $44.96 per diluted share, down 7% and 6%, respectively, from the 2019 first quarter. Wall Street was expecting a gain of $45.61 per share.
Consolidated revenues for the first quarter of 2020 totaled $1,582,528,000, which decreased 6% from $1,687,011,000 in the first quarter of 2019.
New orders in the first quarter of 2020 decreased by 2% to 5,015 units compared to 5,139 units in the first quarter of 2019. The average sales price of new orders in the first quarter of 2020 was $372,300, an increase of 1% when compared with the first quarter of 2019. The cancellation rate in the first quarter of 2020 was 21% compared to 14% in the first quarter of 2019. In March, the company experienced an increase in sales cancellations and a decrease in new orders due to the impact of the COVID-19 pandemic. Settlements decreased in the first quarter of 2020 to 4,230 units, 6% lower than the first quarter of 2019.
Backlog of homes sold but not settled as of March 31, 2020 of 9,018 units and $3,441,151,000 was flat with backlog unit and dollar balances as of March 31, 2019. The backlog of homes sold but not settled includes 1,178 units and $482,530,000 in Pennsylvania and New York, where the state and local governments have issued various orders that prohibit residential construction at this time. Of the backlog in Pennsylvania and New York, 510 units and $203,249,000 have not started construction as of March 31, 2020. The remaining 668 units are in various stages of construction. Once the government orders in Pennsylvania and New York allow residential construction activities to resume, the company expects to complete these homes and deliver them to the buyers with whom it is currently under contract. In light of current economic conditions, NVR expects this backlog may experience a higher level of cancellations than the rest of the backlog due to its “inability to promise a delivery date on these units.”
Home building revenues of $1,555,707,000 in the first quarter of 2020 decreased compared to home building revenues of $1,643,206,000 in the first quarter of 2019. Gross profit margin in the first quarter of 2020 decreased to 16.8%, compared to 18.5% in the first quarter of 2019. Gross profit margin in the current year was affected by contract land deposit impairments of approximately $36,400,000, or 2.34% of revenue. Income before tax from the home building segment totaled $149,919,000 in the first quarter of 2020, a decrease of 20% when compared to the first quarter of 2019.
Mortgage Banking
Mortgage closed loan production in the first quarter of 2020 totaled $1,132,104,000, a decrease of 1% when compared to the first quarter of 2019. Income before tax from the mortgage banking segment totaled $11,456,000 in the first quarter of 2020, a decrease of 62% when compared to $30,197,000 in the first quarter of 2019. This decrease is due primarily to the reduction in fair value of mortgage servicing rights as a result of the disruptions in the mortgage market related to the COVID-19 pandemic.
Other Matters: COVID-19
The company issued the following statement: “The COVID-19 pandemic has had a significant impact on all facets of our business. Our primary focus as we face this challenge is to do everything we can to ensure the safety and well-being of our employees, customers, and trade partners. While residential construction has been deemed an essential business in each of the markets we operate except Pennsylvania and New York, the state government in every market where we operate has instituted social distancing and other restrictions, which have resulted in significant changes to the way we conduct business. In all markets where we are permitted to operate, we are operating in accordance with the guidelines issued by the Centers for Disease Control and Prevention as well as state and local guidelines.
“There is uncertainty regarding the extent and timing of disruption to our business that may result from COVID-19 and related governmental actions. There is also uncertainty as to the effects of economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance including the impact of future developments such as the duration and spread of COVID-19, corresponding governmental actions, and the impact of such on our employees, customers, and trade partners.”
