M.D.C. Holdings Announces 2012 Second Quarter Results
DENVER, July 31, 2012 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE: MDC) announced results for the quarter ended June 30, 2012.
2012 Second Quarter Highlights and Comparisons to 2011 Second Quarter
- Net income of $10.6 million, or $0.22 per diluted share, vs. net loss of $28.0 million, or $0.60 per diluted share
- 1,402 net new orders, up 32%
- Backlog of 2,028 homes, up 42%; backlog dollar value up 52% to $657.5 million
- Home sale revenues of $256.5 million, up 24%
- 861 homes closed, up 21%
- Gross margin from home sales of 14.2% vs. 8.9%
- No inventory impairment charges versus $8.6 million for the 2011 second quarter
- Home gross margin before impairment charges, interest and warranty adjustments improved 200 basis points to 16.9%*
- Homebuilding SG&A expenses of $39.2 million, a decrease of $9.9 million, or 20%
- SG&A as a percentage of home sale revenues of 15.3%, an 850 basis point improvement
- G&A expense included $3.8 million in litigation recoveries
Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "I am pleased to announce a second quarter profit of $0.22 per share, with net income improving by nearly $40 million over the prior year. We believe that our favorable results are largely attributable to our implementation of several key strategic initiatives, which we announced over the past few quarters, combined with modest improvements in homebuilding and overall market conditions."
Mizel continued, "We dramatically improved our operating leverage in the second quarter by accelerating our sales absorption pace and reducing overhead costs. These efforts drove a 21% year-over-year increase in new home deliveries and a 20% year-over-year reduction in our homebuilding SG&A costs. In addition, our interest expense decreased by $7.3 million for the second quarter, largely due to the debt reduction we undertook during the last half of 2011, and our impairment charges fell $8.6 million against a backdrop of stabilizing new home prices. As a result, our homebuilding segment achieved an operating profit for the first time in five years."
Mr. Mizel concluded, "As the overall housing market has continued to show signs of recovery over the last several quarters, our efforts to improve our sales process, product offering and cancellation rate have helped us improve sales results. During the second quarter, net new orders increased 32% year-over-year to a five-year second quarter high, driven by a 24% improvement in our absorption pace per community and a 900 basis point reduction in our cancellation rate. With our quarter-end backlog up 42% over the prior year, we are well-positioned to achieve continued gains in operating leverage during the second half of 2012 and achieve our goal of reaching profitability for 2012."
Home sale revenues for the 2012 second quarter increased 24% to $256.5 million compared to $206.2 million for the prior year period. The increase in revenues resulted primarily from a 21% increase in homes closed to 861 homes as compared to 709 in the prior year. The Company's average selling price for homes closed was $297,900, up 2% year-over-year compared to $290,800 for the prior year period, due to increases in most markets.
Gross margin from home sales for the 2012 second quarter was 14.2% versus 8.9% for the year earlier period. The 2012 second quarter did not include any inventory impairments or benefits related to warranty accrual adjustments. However, the 2011 second quarter included $8.6 million in inventory impairments and a $1.8 million benefit related to a warranty accrual reduction.
Excluding inventory impairments, warranty accrual adjustments and previously capitalized interest in cost of sales, adjusted gross margin from home sales was 16.9%* for the 2012 second quarter, compared to 14.9%* for the 2011 second quarter and up marginally compared to 16.7%* for the 2012 first quarter. The 200 basis point year-over-year improvement in the Company's adjusted gross margin from home sales was driven by closing a significantly higher percentage of homes started with buyers under contract, which historically have been more profitable than homes started without a buyer under contract. In addition, our gross margin percentage benefited from a meaningful year-over-year reduction in incentives, partially offset by reduced customer spending on home upgrades, as we are including a higher level of upgrades in our base home price in communities across the country.
The Company's 2012 second quarter homebuilding selling, general and administrative ("SG&A") expenses decreased 20% to $39.2 million, compared to $49.2 million for 2011 second quarter, down 850 basis points as a percentage of home sale revenues to 15.3% versus 23.8% for the 2011 second quarter. The lower level of SG&A expenses and SG&A rate was primarily attributable to various cost reduction efforts, including lower compensation expense due to lower headcount, higher operating leverage from increased revenues and $3.8 million in legal recoveries.
Net new orders for the 2012 second quarter increased 32% to 1,402 homes, compared to 1,064 homes during the same period in 2011. The Company's monthly sales absorption rate for the 2012 second quarter was 2.6 per community, compared to 2.1 per community for the 2011 second quarter. The Company's cancellation rate for the 2012 second quarter was 20% versus 29% in the prior year second quarter.
The Company ended the 2012 second quarter with 2,028 homes in backlog, its highest backlog level since the 2007 third quarter, with an estimated sales value of $657.5 million, compared with a backlog of 1,424 homes with an estimated sales value of $433.5 million at June 30, 2011.
Income before taxes from our financial services segment for the 2012 second quarter was $6.7 million, compared to $3.1 million for the 2011 second quarter. The increase in pretax income primarily reflected a $4.4 million increase in our mortgage operations pretax income from $1.3 million in the 2011 second quarter to $5.7 million for the 2012 second quarter. The improvement in our mortgage profitability was driven largely by a $4.1 million increase in the gains on sales of mortgage loans due to favorable mortgage market conditions and a decrease in the level of special financing programs that we offered our homebuyers.
Since 1972, MDC's subsidiary companies have built and financed the American dream for more than 165,000 homebuyers. MDC's commitment to customer satisfaction, quality and value is reflected in each home its subsidiaries build. MDC is one of the largest homebuilders in the United States. Its subsidiaries have homebuilding operations across the country, including the metropolitan areas of Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, Riverside-San Bernardino, Los Angeles, San Francisco Bay Area, Washington D.C., Baltimore, Philadelphia, Jacksonville and Seattle. The Company's subsidiaries also provide mortgage financing, insurance and title services, primarily for Richmond American homebuyers, through HomeAmerican Mortgage Corporation, American Home Insurance Agency, Inc. and American Home Title and Escrow Company, respectively. M.D.C. Holdings, Inc. is traded on the New York Stock Exchange under the symbol "MDC." For more information, visit www.mdcholdings.com.
Certain statements in this release, including statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic conditions, including changes in consumer confidence, inflation or deflation and employment levels; (2) changes in business conditions experienced by the Company, including cancellation rates, net home orders, home gross margins, and land and home values; (3) changes in interest rates, mortgage lending programs and the availability of credit; (4) changes in the market value of the Company's investments in marketable securities; (5) uncertainty in the mortgage lending industry, including repurchase requirements associated with HomeAmerican's sale of mortgage loans (6) the relative stability of debt and equity markets; (7) competition; (8) the availability and cost of land and other raw materials used by the Company in its homebuilding operations; (9) the availability and cost of performance bonds and insurance covering risks associated with our business; (10) shortages and the cost of labor; (11) weather related slowdowns; (12) slow growth initiatives; (13) building moratoria; (14) governmental regulation, including the interpretation of tax, labor and environmental laws; (15) terrorist acts and other acts of war; and (16) other factors over which the Company has little or no control. Additional information about the risks and uncertainties applicable to the Company's business is contained in the Company's Form 10-Q for the quarter ended June 30, 2012, which is scheduled to be filed with the Securities and Exchange Commission today. All forward-looking statements made in this press release are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this press release will increase with the passage of time. The Company undertakes no duty to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent filings, releases or webcasts should be consulted.