MDC Holdings reported today its third-quarter profit plunged 60 percent as the homebuilder grapples with a competitive environment and high inventories.
The Denver-based company, parent of Richmond American Homes, earned $48.7 million, or $1.06 a share, down from $121 million, or $2.62 a share a year earlier. Average analyst estimates were $1.35 a share.
Revenue dropped to $1.08 billion from $1.17 billion a year ago. Analysts had projected revenue of $1.09 billion.
Incentives as a percentage of average selling price doubled during the last quarter, said Paris “Gary” Reece, the company’s chief financial officer. Previously, incentives were about 3 percent of the average selling price.
The average sales price rose 15 percent to $358,200. But home closings dropped 20 percent to 2,955 and the company’s profit margin on homes narrowed to 22.7 percnet from 28.8 percent.
The cancellation rate has nearly doubled to 48.5 percent.
Demand for new homes, particularly in Colorado, has been weak, Reece said.
“It’s a bit of a mystery,” he said. “We have job growth in a positive way for the last couple of years. It’s a vibrant community. But we’ve seen MLS listings rise and foreclosures on a per capita basis are the highest in the country.”
With other homebuilders struggling as well, it’s possible MDC could acquire a smaller, private company. Markets MDC may be interested in include Florida, Phoenix, Las Vegas and California.
“It is getting increasingly more difficult for the smaller guys,” Reece said. “Those are the kinds of things we listen for or are looking for, but I can’t say whether we would act or not.”
The company has decreased its land investment by $100 million durin gthe third quarter and reduced the number of lots it controls by 25 percent.
But as more homebuilders struggle, land may become available at sharply reduced prices.
“This is a unique opportunity for us to have liquidity,” said Larry Mizel, MDC’s chief executive. “There will be opportunities for us to make attractive purchases of assets.”
Staff writer Margaret Jackson can be reached at 303-954-1473 or at mjackson@denverpost.com
