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NVR Earnings Surpass Estimates in Q3, Margin Woes Linger

Despite better-than-expected results in third-quarter 2018, shares of NVR, Inc. NVR lost 3.6% in the last two trading sessions. The decline might be due to the dismal gross margin performance. In the past six months, the stock has declined 32% compared with the industry’s 16% fall.

NVR, one of the country’s leading homebuilding and mortgage banking companies, reported third-quarter 2018 earnings of $48.28 per share, beating the Zacks Consensus Estimate of $47.64 by 1.3%. Also, earnings increased 27% from the prior-year quarter, primarily owing to reduction in effective tax rate.

Total revenues (Homebuilding & Mortgage Banking fees combined) were $1.85 billion in the quarter, up 11% year over year on higher homebuilding and mortgage revenues.




Segment Details

Homebuilding: In the reported quarter, homebuilding revenues increased 11% year over year to approximately $1.81 billion.New orders jumped 2% to 4,302 units, driven by higher demand in the housing markets served by NVR. Settlements increased 14% from the year-ago quarter to 4,754 units. Average settlement price declined 3.2% year over year to $380,500 along with the decline of 2% in average new order price amounting to $374,000. At the end of the reported quarter, average community count was 479, in line with the prior-year quarter. The company's backlog increased 10% year over year to 9,710 units, as of Sep 30, 2018.

Margins

In the third quarter of 2018, gross profit margin contracted 130 basis points to 18.6% and income before tax decreased 1% to $224 million. The decline was due to the negative impact of an impairment charge of $7.4 million to one of the company's joint venture investments. Selling, general and administrative (SG&A) expenses were $109.4 million compared with $95.6 million in the prior-year quarter.

Mortgage Banking: In the reported quarter, Mortgage banking fees rose 26% year over year to $43.1 million. Mortgage totaled $1.2 billion in closed loan production, marking an increase of 12% year over year.

NVR, Inc. Price, Consensus and EPS Surprise


NVR, Inc. Price, Consensus and EPS Surprise | NVR, Inc. Quote

 

Financials

NVR’s cash and cash equivalents for Homebuilding and Mortgage Banking were $598.8 million and $11.1 million, respectively, as of Sep 30, 2018, compared with $645.1 million and $21.7 million as of Dec 31, 2017.

Zacks Rank

Currently, NVR carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the Construction sector are Armstrong Flooring, Inc. AFI, Toll Brothers, Inc. TOL and MasTec, Inc. MTZ, sporting a Zacks Rank #2 (Buy) You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Armstrong Flooring has an expected current-year earnings growth rate of 104.7%.

Toll Brothers has an expected current-year earnings growth rate of 44.2%.

MasTec has an expected earnings growth rate of 123.4% for the next quarter.

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