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NVR Stock Falls on Q4 Earnings Miss, Gross Margin Grows Y/Y

Zacks Equity Research

NVR, Inc. NVR reported adjusted fourth-quarter 2017 earnings of $43.41 per share, missing the Zacks Consensus Estimate of $48.95 by 11.3%.

NVR’s share price dropped 1.9% on Jan 26 following its earnings release on Jan 25.

The company’s reported figure was adjusted for the charge due to the enactment of the Tax Cuts and Jobs Act in December 2017, which required a remeasurement of the company's deferred tax assets. Without the adjustment, NVR reported earnings of $28.88 per share, decreasing 24% year over year.

Total revenues (Homebuilding & Mortgage Banking fees) were $1.8 billion in the quarter, increasing 3.7% from the prior-year quarter on account of higher housing revenues.

NVR, Inc. Price, Consensus and EPS Surprise

 

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

Segment Details

Homebuilding: In the reported quarter, homebuilding revenues rose 4% year over year to $1.78 billion.

New orders climbed 18% to 4,306 homes, driven by demand growth in the housing markets served by NVR. Settlements increased 5% from the year-ago quarter to 4,630 units. Average sales price was $380,800, down 4% from a year ago due to a shift in new orders from higher priced markets to lower priced ones and slashed product prices.

At the end of the reported quarter, average community count was 484, down 2.2% year over year.
The company’s backlog totaled 8,531 homes (as of Dec 31, 2017), up 23.9% from the prior-year quarter. Potential housing revenues from backlog increased 21% to $3.3 billion.

Margins

Homebuilding gross margin expanded 150 basis points (bps) to 19.3% owing to a modest improvement in pricing, along with moderating construction costs.

As a percentage of homebuilding revenues, selling, general and administrative expenses (SG&A) were 5.5%, up 20 bps year over year.

Mortgage Banking: In the quarter, Mortgage banking fees grew 1.8% year over year to $34.8 million. Mortgage totaled $1.2 billion in closed loan production, reflecting an increase of 2% year over year.

2017 Highlights

NVR, one of the nation’s largest homebuilding and mortgage-banking companies’, total revenues (Homebuilding & Mortgage Banking fees) totaled $6.3 billion, up 8.3% year over year. Homebuilding revenues for the year totaled $6.2 billion, an increase of 8% from 2016 level. Gross margin was 19.2%, an improvement of 170 bps year over year.  Income before tax for the homebuilding segment increased 29%.

NVR’s new orders for the year increased 13% from the year-ago quarter to 17,608 units. Prices of the new orders grew 6.9%. Average community count remained unchanged from 2016 level at 485 units.

Financials

NVR’s cash and cash equivalents totaled $645.1 million as of Dec 31, 2017, compared with $375.7 million as of Dec 31, 2016.

Zacks Rank

NVR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases in the Construction Sector

D.R. Horton Inc. DHI is slated to release quarterly results on Jan 31. The Zacks Consensus Estimate for the first quarter of fiscal 2018 earnings is pegged at 63 cents, showing an increase of 14.6% year over year.

PulteGroup, Inc. PHM is slated to release quarterly results on Jan 30. The Zacks Consensus Estimate for fourth-quarter earnings is 84 cents, highlighting an increase of 25.4% on a year-over-year basis.

Louisiana-Pacific Corp. LPX is scheduled to release quarterly numbers on Feb 13. The consensus estimate for fourth-quarter earnings is pegged at 58 cents, reflecting an increase of 152.2% on a year-over-year basis.

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