M Homes Profit Falls as Orders Accelerate
New contracts increased 15% to a second-quarter record of 2,387.
M Homes (MHO), the home builder, posted a 35% decline in second-quarter net income as fewer closings and lower prices squeezed housing revenue.
Demand strengthened despite the earnings pressure. New contracts rose 15% from a year earlier, accelerating from 3% growth in the first quarter and reversing an 8% decline in the year-earlier period. The cancellation rate improved to 8% from 13% and held level with the first quarter.
Revenue fell 9% to $1.063 billion, reversing 5% growth a year earlier, though it increased 15% sequentially from $921 million. Net income declined to $79.1 million from $121.2 million, and diluted earnings fell 32% to $3.02 a share. Compared with the first quarter, net income rose 17% and earnings increased 18%.
Home deliveries declined 6% to 2,206, and the average closing price fell 4% to $459,000. Those declines drove housing revenue down 10% to $1.012 billion. Gross margin narrowed to about 22.2% from 24.7%, and operating income fell 35% as selling and general-and-administrative expenses remained roughly flat against lower revenue.
Contract growth extended across the business, with Northern-region orders up 16% and Southern-region orders up 14%. The Southern backlog remained weaker: units declined 8%, value fell 14% and the average sales price dropped to $508,000. Northern backlog units fell 4%, while the region’s average price increased to $567,000.
Land sales provided a partial offset, with revenue nearly tripling to $18.9 million and gross profit rising 71% to $5.5 million. Financial-services revenue edged up 3% to $32.3 million, though pre-tax income was essentially flat. Inventory charges of $4.2 million reduced diluted earnings by $0.12 a share.
Backlog units ended the quarter down 6% and backlog value declined 8%, substantially narrower contractions than in the first quarter. Both measures rose 8% sequentially. Book value increased 9% to a record $127.88 a share, while the homebuilding debt-to-capital ratio held at 18%, leaving stronger orders to work through a backlog that remained below year-earlier levels.