M.D.C. Holdings, Inc., Denver (NYSE: MDC) reported net income of $22.2 million, or $0.43 per diluted share, for the first quarter ended March 31, up 133% from $9.6 million or $0.19 per diluted share in the comparable quarter in 2016. Analysts were expecting a gain of $0.36 per share.
Home sale revenues rose 43% to $563.5 million as closings rose 38% to 1,256. Selling, general and administrative expenses as a percentage of home sale revenues (“SG&A rate”) improved 250 basis points from 14.3% to 11.8%. Gross margin from home sales was 15.9% a 40 basis point decrease from 16.3% in the prior year period. The 2017 first quarter included $4.9 million of inventory impairments while our 2016 first quarter included $3.0 million of expense to adjust our warranty accrual.
Selling, general and administrative (“SG&A”) expenses for the 2017 first quarter were $66.3 million, up $10.0 million from $56.3 million for the same period in 2016. SG&A improved by 250 basis points to 11.8% for the 2017 first quarter from 14.3% in the 2016 first quarter. The decrease in the SG&A rate was primarily the result of an increase in home sale revenues and, to a lesser extent, a $2.5 million decrease in stock-based compensation.
The dollar value of net new orders for the 2017 first quarter increased 3% year-over-year to $750.0 million. The improvement was the result of a 3% increase net new order activity as the monthly sales absorption pace increased 8% year-over-year. Strong demand for more affordable home plans was one of the key drivers of the increase in absorption pace. The positive impact of our improved monthly sales absorption pace was partially offset by a 4% year-over-year decrease in average active community count.
Backlog value at the end of the 2017 first quarter was up 11% year-over-year to $1.59 billion. The improvement was due mostly to an 8% increase in the number of units in backlog, which was primarily the result of strong sales activity over the last-twelve months and slightly extended cycle times in certain of our larger markets.
Larry A. Mizel, chairman and CEO, said, “We advanced the efficiency of our build-to-order operating model during the first quarter, as demonstrated by the strength of our financial results. An improved conversion rate, coupled with a larger backlog to start the quarter, drove a 43% year-over-year increase in home sale revenues and a significant gain in operating leverage. As a result, our first quarter net income increased to $22.2 million, more than double the level of the same quarter a year ago.”
He continued, “Our more affordable collections of home plans continue to be a key focus as we look to expand in most of our markets across the country. The demand for this product is encouraging, bolstering our view that first-time homebuyers should serve as a significant source of growth for new home sales nationwide. Some uncertainty remains because of potential changes in policy from the new administration, but we remain optimistic about the future of the homebuilding industry, supported by a solid macroeconomic environment and favorable dynamics in the balance between housing supply and demand.”
