M.D.C. Holdings (NYSE:MDC), Denver, parent of Richmond American Homes, on Wednesday reported net income of $40.4 million, or $0.78 per share, for the fourth quarter ended Dec. 31, 2016. The profit was up 79% from $22.6 million, or $0.44 per share, for the 2015 quarter. Analysts polled by the Wall Street Journal were expecting a gain of $0.67 per share.
Home sale revenue for quarter increased 29% to $715.8 million, primarily driven by a 24% increase in deliveries to 1,582, which the company attributed partly to a 33% year-over-year increase in homes in beginning backlog. New orders were flat with last year’s quarter at 1,018, with dollar value climbing 5% to $473.4 million due to a 5% increase in average selling price to $465,000.
Backlog value at the end of the 2016 fourth quarter was up 31% year-over-year to $1.38 billion, due mostly to a 24% increase in the number of units in backlog, the result of (1) an increase in net new order activity over the last twelve months for most markets, (2) a higher percentage of backlog coming from build-to-order sales, which are generally in backlog for a longer period of time and, (3) limited subcontractor availability, which has extended cycle times in most of the company’s larger markets.
Selling, general and administrative (“SG&A”) expenses for the 2016 fourth quarter were $67.9 million, up $4.3 million from $63.6 million for the same period in 2015. SG&A improved by 200 basis points to 9.5% for the 2016 fourth quarter from 11.5% in the 2015 fourth quarter. This decrease in the SG&A rate was primarily the result of the increase in home sale revenues.
Income before taxes for our financial services operations for the 2016 fourth quarter was $11.4 million, a $2.3 million increase from $9.1 million in the 2015 fourth quarter.
“We are proud that our success in 2016 was achieved without losing focus on our balance sheet, which features a unique combination of low leverage, carefully managed exposure to home building assets, and liquidity exceeding $900 million,” said Larry A. Mizel, MDC’s CEO and chairman, “The combination of strong balance sheet metrics and accelerating returns gave us the confidence to continue to reward shareholders during 2016 through our industry-leading dividend program, not only with the payment of our long-standing cash dividend, but also with a special 5% stock dividend in the fourth quarter.”
Mizel continued, “Early in 2016, we announced the roll-out of a more affordable collection of home plans. This new product has been well-received by potential home buyers, which helps to reinforce our belief that the first-time home buyer can drive growth in new home sales nationwide for the industry in the coming year. Based on our positive experience thus far, expanding the offering of our more affordable home plans will continue to be a strategic focus of the Company in 2017. With the dollar value of our backlog up 31% year-over-year and encouraging macroeconomic drivers such as increasing personal income levels, high employment levels and increasing consumer confidence, we are optimistic as we enter the 2017 spring selling season. However, this optimism is somewhat tempered by an increased risk for a rise in interest rates, which already increased significantly during the final quarter of 2016, and uncertainty surrounding potential changes in government policy following the 2016 Presidential Election.”
