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NVR Earnings Surpass Estimates in Q3, Margin Woes Linger
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Despite better-than-expected results in third-quarter 2018, shares of NVR, Inc. (NVR - Free Report) 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’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.
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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NVR Earnings Surpass Estimates in Q3, Margin Woes Linger
Despite better-than-expected results in third-quarter 2018, shares of NVR, Inc. (NVR - Free Report) 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. , Toll Brothers, Inc. (TOL - Free Report) and MasTec, Inc. (MTZ - Free Report) , 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.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>