NVR Beats Q4 Earnings Estimates, Sees Tax Rate Benefits

NVR, Inc. (NYSE:NVR) reported fourth-quarter 2018 earnings of $58.57 per share, beating the Zacks Consensus Estimate of $48.46 by 20.9%. Also, earnings of NVR, one of the country’s leading homebuilding and mortgage banking companies, increased 103% from the prior-year quarter, primarily owing to a reduction in effective tax rate.

Total revenues (Homebuilding & Mortgage Banking fees combined) were $1.99 billion in the quarter, up 10% year over year on higher homebuilding and mortgage revenues.

Segment Details

Homebuilding: In the reported quarter, homebuilding revenues increased 10% year over year to approximately $1.95 billion. However, new orders plunged 11% from the prior-year quarter to 3,841 units. Average sales price (“ASP”) of new orders in the quarter was $376,100, reflecting a 1% year-over-year decline. That said, settlements increased 12% from the year-ago quarter to 5,186 units.

At the end of the reported quarter, average community count was 477, down from the prior-year level of 485 units.

As of Dec 31, 2018, backlog (homes sold but not settled) decreased 2% from a year ago to 8,365 units and 4% (on a dollar basis) to $3.2 billion.

Margins

In the fourth quarter of 2018, gross profit margin contracted 70 basis points (bps) to 18.6%, while income before tax increased 5% from the year-ago quarter to $255.1 million. Selling, general and administrative (SG&A) expenses were $107.4 million compared with $97.7 million in the prior-year quarter.

Mortgage Banking: In the reported quarter, Mortgage banking fees rose 15.2% year over year to $40.1 million. Mortgage totaled $1.36 billion in closed loan production, marking an increase of 10% year over year.

Meanwhile, earnings per share were favorably impacted by a reduction in the company's effective tax rate, which was 16.3% in the quarter compared with 52.3% in the year-earlier period.

2018 Highlights

Full-year earnings came in at $194.80 per share, reflecting an increase of 54% from the 2017 level. Total revenues amounted to $7.2 billion, reflecting a 14% year-over-year increase. Gross margin contracted 50 bps to 18.7% in 2018. Meanwhile, income before tax, for the homebuilding segment, improved 12% from a year ago to $871.1 million.

New orders and settlements during the year increased 4% and 16% from the year-ago level to 18,281 and 18,447 units, respectively. Again, homebuilding revenues in 2018 totaled $7 billion, up 13% from 2017.

Effective tax rate was 16.9% in the year versus 36.5% in 2017.

Financials

As of Dec 31, 2018, NVR’s cash and cash equivalents for Homebuilding and Mortgage Banking were $688.8 million and $23.1 million, respectively, compared with $645.1 million and $21.7 million as of Dec 31, 2017.

Zacks Rank

Currently, NVR carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

D.R. Horton, Inc.’s (NYSE:DHI) earnings came in at 76 cents per share in first-quarter fiscal 2019, missing the Zacks Consensus Estimate by 2 cents. The reported figure also decreased 1.3% from the year-ago adjusted profit level of 77 cents.

Lennar Corporation’s (NYSE:LEN) fourth-quarter 2018 adjusted earnings of $1.96 per share topped the consensus mark of $1.93 by 1.6%. However, total revenues of $6.46 billion missed the consensus mark of $6.53 billion.

KB Home’s (NYSE:KBH) fourth quarter of fiscal 2018 earnings of 96 cents per share outpaced the Zacks Consensus Estimate of 93 cents by 3.2% and also increased 14% from 84 cents recorded a year ago. Total revenues of $1.348 billion, however, missed the consensus mark of $1.350 billion.

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