MDC's Q3 Earnings Top, Revenues Miss, Net New Orders Rise
M.D.C. Holdings, Inc. MDC reported mixed third-quarter 2023 results, wherein earnings topped the Zacks Consensus Estimate while the revenues missed the same. Moreover, both the metrics declined year over year as well.
MDC’s uptrend can be attributable to the current new home market, which continues to benefit from the lack of existing home supply. The company witnessed notable improvements in its net new orders driven by a significant decline in cancellations and its use of financing incentives, which are aimed at reducing the negative impact of higher mortgage rates for its buyers. Given the ongoing market scenario, the company aims to increase its land acquisition efforts and improve its market share position.
Following the results, shares of this homebuilding company declined 1.5% in the pre-market trading session on Oct 26.
Earnings & Revenue Discussion
The company reported quarterly earnings of $1.40 per share, which topped the Zacks Consensus Estimate of earnings of $1.18 per share by 18.6%. However, the bottom line decreased 29.3% from the year-ago quarter’s figure of $1.98 per share. The downside was due to soft housing revenues and inflationary costs.
M.D.C. Holdings, Inc. Price, Consensus and EPS Surprise
M.D.C. Holdings, Inc. price-consensus-eps-surprise-chart | M.D.C. Holdings, Inc. Quote
Total revenues (including Homebuilding revenues and Financial Services revenues) of $1.11 billion missed the consensus mark of $1.12 billion by 0.9% and declined 22.9% on a year-over-year basis from $1.44 billion reported a year ago.
Segment Details
Homebuilding: Home sale revenues of $1.09 billion fell 22.7% from the prior-year period’s levels due to a 6.4% lower average selling price or ASP and lower unit deliveries by 419 units. Homebuilding revenues topped our model’s prediction of $1.06 billion or a year-over-year decline of 24.7%.
Units delivered were also down 17.6% from the year-ago level to 1,968 homes. Our model predicted 1,890 units delivered for the reported quarter.
Net new orders grew by a whopping 466.9% year over year to 1,695 units, driven by an increase in the monthly sales absorption pace of 2.4 homes per community. The value of net orders increased 532% from the year-ago quarter’s levels to $965.5 million, backed by the increase in net new orders. The company’s net new orders’ units and value were below our model’s expectation of 1,757 units and $983.7 million, respectively.
Cancellations, as a percentage of gross sales, decreased year over year to 23.9% from 80.9%. The monthly absorption rate also increased 419.6% year over year.
At the end of the quarter, the backlog totaled 2,775 homes, down 48% from a year ago. Potential housing revenues from backlog plunged 48% from the prior-year period’s levels to $1.66 billion at an ASP of $597,700.
Housing gross margin contracted 350 basis points (bps) year over year to 19.2%. This contraction was due to a decline in home sales revenues along with inflationary environments. The metric, however, topped our model’s prediction of 16.2%.
Selling, general and administrative expenses — as a percentage of housing revenues — decreased 70 bps from the year-ago quarter’s figure to 9.3%.
Financial Services’ revenues declined 30.3% year over year to $23.8 million.
Balance Sheet & Cash Flow
MDC had cash and cash equivalents of $1.21 billion in the Homebuilding segment and $150.5 million in the Financial Services unit as of Sep 30, 2023. This compares with 2022-end numbers of $696.1 million and $17.9 million, respectively.
Total inventories declined to $3.24 billion from $3.52 billion at 2022 end. Lots owned and optioned of 22,353 in September 2023-end were down 24% from 29,256 at September 2022 end.
Net cash used in operating activities was $28.8 million in the quarter against net cash provided by operating activities of $172.9 million a year ago.
Q4 Outlook
For fourth-quarter 2023, the company expects home deliveries to be between 2,200 units and 2,400 units. This indicates a fall from 2,554 units reported in fourth-quarter 2022. The ASP is anticipated to be between $545,000 and $555,000 compared with $582,000 reported a year ago.
Housing gross margin (assuming no impairments or warranty adjustments) is anticipated to be between 18% and 19.5%, compared with 15% reported in the prior-year period.
Zacks Rank
MDC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Construction Releases
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