Home builder MDC Holdings, which operates as Richmond American Homes, reported 3,800 net home orders in the first quarter, a 19.6 percent drop from 4,546 home orders in first-quarter 2005. The order cancellation rate increased from 20.2 percent in first-quarter 2005 to 31 percent in first-quarter 2006.
The company’s backlog increased from $2.44 billion in fourth-quarter 2005 to $2.7 billion (7,134 homes) in first-quarter 2006. And MDC reported 3,198 homes closed in first-quarter 2006, compared to 3,158 homes closed in first-quarter 2005.
Net income grew from $84.6 million in first-quarter 2005 to $95.4 million in first-quarter 2006, a gain of 12.7 percent.
The company’s net income for the first quarter represents $2.08 earnings per share, compared with $1.86 per share for the same period in 2005. Total revenue for the first quarter reached $1.14 billion, up 22 percent from the same period in 2005.
Larry A. Mizel, MDC’s chairman and CEO, said in a statement that the market is definitely turning.
“We are keenly aware that the home-building environment has weakened. Because the level of our success in 2006 will hinge largely on our ability to generate net home orders in this environment over the balance of the year, we are not in a position to predict whether our revenues and earnings for the full year 2006 will exceed our 2005 performance. Nevertheless, we are optimistic that generally strong economic conditions will help our more challenged markets return to sustainable, healthy levels of demand for new homes,” he stated.
The company “continued to reallocate our financial and human capital away from Texas to markets such as Salt Lake City, where recently we acquired certain assets of Salisbury Homes to strengthen our position as a leading builder in one of our fastest-growing markets,” Mizel also reported.
Home-building operating profits for the quarter ended March 31, 2006, were $173.8 million, representing an increase of 7 percent over profits of $162.5 million for the same period in 2005. This increase primarily resulted from higher average selling prices, which reached an average of $350,000 for the quarter ended March 31, 2006, up $59,700 from the first quarter of 2005, MDC reported.
The company closed 3,198 homes in the 2006 first quarter, compared with 3,158 home closings in the same period in 2005, and home gross margins were 27.2 percent, compared with 28.4 percent for the comparable period in 2005.
Paris G. Reece III, MDC’s executive vice president and chief financial officer, said in a statement, “During the first quarter of 2006, we once again improved our homebuilding profits, realizing year-over-year increases in many of our markets, most notably in Arizona, Florida and Maryland. Each of these markets benefited from increased average selling prices and home gross margins, though none experienced a year-over-year increase in home closings. The first quarter home gross margin increases recorded in these markets, as well as in Utah and Virginia, were more than offset by lower home gross margins in Nevada and California. As in the prior three quarters, our home gross margins eased in Nevada from the … levels realized in the comparable periods of the previous year. In addition, our home gross margins in California moderated from the levels achieved in the first quarter of 2005, due in part to the earlier close-out of certain high margin subdivisions in both Los Angeles and the Bay Area.”
Operating profits from the company’s financial services business for the first quarter of 2006 nearly tripled from the 2005 first quarter, increasing to $8.3 million, MDC announced. The profit improvement primarily was due to higher gains on sales of mortgage loans, compared with the same period in 2005. Increased volumes of mortgage loan originations and mortgage loans sold drove the higher gains. The company expanded the offering of mortgage loan products that it could originate directly for its customers, thereby decreasing the need for less profitable loans brokered to outside lenders, MDC reported.
MDC received orders, net of cancellations, for 3,800 homes with a sales value of $1.36 billion during the 2006 first quarter, compared with net orders for 4,546 homes with a sales value of $1.48 billion during the same period in 2005. The company ended the first quarter of 2006 with a backlog of 7,134 homes, compared with a backlog of 7,893 homes at March 31, 2005. The estimated sales value of backlog at the end of the 2006 first quarter was $2.7 billion, 11 percent higher than the $2.43 billion estimated sales value of backlog at March 31, 2005.
“While our net home orders received in most of our markets have slowed from their strong and, in some cases, unsustainable levels over the past few years, we have been encouraged by the number of gross home order contracts, exclusive of cancellations, that we have taken during the 2006 first quarter,” Reece stated. “In fact, we received higher year-over-year gross home orders in all markets except Colorado, Virginia and Texas, and our total gross home orders excluding Texas in the 2006 first quarter actually were higher than in the first quarter of 2005. However, almost all of our markets experienced higher home order cancellations, contributing to lower net home orders per active subdivision in every market except Utah, which has continued to show strength.”
Similar to the last three quarterly periods, net home orders received in the 2006 first quarter were lower year-over-year in Arizona. This decline primarily resulted from a reduction in the number of gross home orders received per active subdivision from record first quarter order levels in 2005, combined with a significant increase in home order cancellations, the company reported.
The increase in cancellations in this market, as well as in Florida and Virginia, was driven in part by what appears to be the exit of speculators from these markets, along with other factors related to higher mortgage interest rates, according to MDC. An increased supply of homes available for purchase in these three markets, as well as in Colorado, resulted in an elevated number of order cancellations from prospective home buyers who were unable to sell their existing homes in a more competitive sales environment. Home orders in Virginia also were impacted by a decline in the number of active subdivisions during the 2006 first quarter, compared with the same period in 2005, MDC reported. Texas experienced the largest year-over-year decline in net home orders in the 2006 first quarter, as a result of our decision not to purchase additional lots in this market.
The company realized a 37 percent year-over-year increase in net home orders received in Utah in the 2006 first quarter. MDC also experienced first-quarter increases in the number of net home orders received in Nevada and California. In these markets, the declines in the number of net home orders received per active subdivision were more than offset by increases in the number of subdivisions in which the company was actively selling homes during the first quarter of 2006, compared with the same period in 2005, MDC announced.
MDC is one of the largest home builders in the United States. The company also provides mortgage financing, primarily for MDC’s home buyers, through subsidiary HomeAmerican Mortgage Corp. The company is the largest home builder in Colorado; among the top five home builders in Northern Virginia, suburban Maryland, Phoenix, Tucson, Las Vegas, Jacksonville and Salt Lake City; and among the top 10 home builders in Northern California and Southern California. MDC also has established operating divisions in West Florida, Delaware Valley, Chicago, Dallas-Fort Worth and Houston.
