MDC Holdings’ quarterly profit dropped 25 percent as orders for new homes fell 43 percent and cancellation rates more than doubled.
The Denver homebuilder reported Thursday that net income for the quarter ending June 30 was $76.5 million, or $1.66 a share, compared with $102.6 million, or $2.25 a share, in the same quarter last year. Analysts had forecast $2.12 a share.
MDC Chairman Larry Mizel blamed the decline on an increasingly competitive homebuilding industry and prospective buyers who postponed purchases.
As a result, the company has focused on strengthening its balance sheet. It has not repurchased common stock this year and has reduced its building lots by 13 percent by letting options to buy expire.
“We will continue to respond to changes in market conditions without compromising our commitment to the quality of our product and the integrity of our financial position,” Mizel said.
MDC received orders for 2,738 homes valued at $914 million in the second quarter, compared with orders for 4,832 homes valued at $1.7 billion during the same period in 2005.
It ended the quarter with a backlog – homes ordered but not yet closed on – of 6,496 homes valued at $2.44 billion.
The increased cancellations are a result of competition among builders rather than speculative buyers deciding they don’t need to complete transactions, said Paris Reece III, MDC’s chief financial officer. About 12 percent of MDC’s buyers canceled last year, compared with nearly 20 percent this year.
Last year, half those orders were canceled before the company started construction. This year, only a quarter of them were canceled before construction started.
“That’s one of the trends that’s most alarming for the company,” Reece said.
Another homebuilder reporting earnings Thursday was D.R. Horton Inc. The company said its third-quarter earnings fell 21 percent, as higher mortgage rates led to the first quarterly drop in its 28-year history.
Horton’s net income in the quarter ending June 30 declined to $292.8 million, or 93 cents a share, from $371.7 million, or $1.17 a share, a year earlier, the Fort Worth, Texas-based company said. Earnings for fiscal 2006 will be at least $3.65 a share, down 21 percent from the prior year, the homebuilder said.
Staff writer Margaret Jackson can be reached at 303-820-1473 or mjackson@denverpost.com.
