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MDC Q3 Earnings & Revenues Miss, Rise Y/Y, Gross Margin Up

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M.D.C. Holdings, Inc. (MDC - Free Report) reported third-quarter 2021 results, wherein the top and bottom lines missed their respective Zacks Consensus Estimate. Shares of this homebuilder dropped 1.8% during the trading session on Oct 28, 2021.

Nonetheless, the company’s earnings and revenues grew on a year-over-year basis buoyed by a double-digit percentage increase in both deliveries and average selling price along with 300 basis points (bps) gross margin expansion offsetting cost inflation.

MDC's executive chairman, Larry Mizel, said, "MDC is in a great position to close out 2021 with momentum thanks to our sizable backlog, great product profile and excellent capital position. We have laid the foundation for a significant increase in community count next year, with 37% more lots under control at the end of the third quarter than we had at the end of the third quarter of 2020. As a result, we believe the future is bright for MDC."

Meanwhile, the company increased its quarterly cash dividend by 25% to 50 cents per share. The dividend will be paid on Nov 24, 2021 to shareholders of record on Nov 10, 2021.

Earnings & Revenue Discussion

The company came up with quarterly earnings of $1.99 per share, which missed the consensus estimate of $2.08 by 4.3% but grew 44.2% from the year-ago figure of $1.38. The upside was owing to a strong improvement in home sale revenues and housing gross margin.

Total revenues of $1.3 billion missed the consensus mark of $1.4 billion by 6.9% but increased 25.4% on a year-over-year basis backed by solid segmental results.

M.D.C. Holdings, Inc. Price, Consensus and EPS Surprise

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

Segment Details

Homebuilding: Segment's revenues of $1.26 billion increased 25.7% from the prior-year period backed by solid deliveries and average selling price or ASP. Units delivered were up 13% from the year-ago level to 2,419 homes. ASP also grew 12% from a year ago to $519,900. Net new home deliveries were up across regions served, barring the mountain region.

Net orders decreased 31.7% from the prior-year quarter to 2,399 homes. The value of net orders also was down 21% from the year-ago quarter to $1.3 billion. That said, monthly absorption rate was 4.1, marking the best third-quarter monthly sales absorption rate in the past 15 years.

Quarter-end backlog totaled 7,658 homes, up 18% from a year ago. Potential housing revenues from backlog also grew 38% from the prior-year period to $4.24 billion on 17% higher ASP.

Housing gross margin registered an improvement of 300 basis points (bps) year over year to 23.5%. Selling, general and administrative expenses — as a percentage of housing revenues — improved 80 bps to 9.6% from the year-ago figure.

Financial Services revenues improved 17.1% year over year to $43.1 million.

Financial Position

MDC had cash and cash equivalents of $761.7 million in the Homebuilding segment and $93.9 million in the Financial Services unit as of Sep 30, 2021. This compares favorably with 2020-end numbers of $411.4 million and $77.3 million, respectively.

As of Sep 30, 2021, lots controlled were up 37% year over year to 36,666.

Net cash used in operating activities was $98.6 million for the third quarter compared with $26.3 million a year ago.

Guidance

For fourth-quarter 2021, the company expects home deliveries between 2,700 and 3,000 units. The average selling price for units delivered is likely to be within $530,000-$540,000. Housing gross margin (excluding impairments and warranty adjustments) is anticipated to be 23.5-24%. General and administrative expenses are expected to increase between $65 million and $70 million for the quarter.

Zacks Rank & Key Picks

MDC currently carries a Zacks Rank #4 (Sell).

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

Some better-ranked stocks in the Zacks Building Products - Home Builders industry include Tri Pointe Homes Inc. (TPH - Free Report) , MI Homes, Inc. (MHO - Free Report) and Toll Brothers Inc. (TOL - Free Report) . While Tri Pointe sports a Zacks Rank #1, other two stocks carry a Zacks Rank #2 (Buy).

Earnings for Tri Pointe, MI Homes and Toll Brothers are expected to grow 80.2%, 63.3% and 80%, respectively, for the current year.