M.D.C. Sees Rise in Net Income
Despite Decline in Home Orders

Home builder M.D.C. Holdings Inc. posted a 38% earnings increase in the fourth quarter, but gross profit margins and orders declined in the period, in a sign the company's outlook may not be as robust.

M.D.C., of Denver, said net income totaled $197.5 million, or $4.29 a share, up from $142.6 million, or $3.17 a share, a year earlier. Revenue climbed 30% to $1.74 billion.

Gross profit margins contracted to 27.9% from 28.2% a year earlier. The company attributed the decline primarily to weaker margins in Nevada. Chief Financial Officer Gary Reece said margins in Nevada had eased "from last year's extraordinary levels." In addition, a large percentage of the company's closings in the quarter came in California, where gross profit margins are below the company average.

At the same time, the company's new-home orders fell 10% in the quarter. Orders serve as a barometer for revenue; they reflect revenue the company will receive two or three quarters down the line when a home sale closes.

Orders plummeted the most in Arizona and Washington, D.C., where they fell 39% and 60%, respectively.

Home orders also fell in Colorado, Florida, Maryland and Texas. Mr. Reece said demand has "moderated to more normalized levels" in markets that had seen big price increases over the past two years.

He also said M.D.C. plans to exit from the Texas market and focus on faster-growth markets. He expects the company to complete the sale or build-out of lots it controls in Texas by the fall. Mr. Reece said Texas had been a drag on the company's margins, and he expects M.D.C.'s margins, returns, average selling prices and bottom line to improve once the company leaves the Texas market.

The order declines were partly offset by order increases in California, Illinois, Nevada and Utah.

Mr. Reece noted that the dollar value of orders rose 8% to $15.3 million, indicating that pricing remains strong.

Average home-order prices rose in almost all of the company's markets, with the most increases coming in Arizona, Nevada, Maryland and Florida. In the latest quarter, the average price of homes closed in the period rose $40,500 to $345,100.

M.D.C. Chairman and Chief Executive Larry Mizel said he remains bullish for 2006, predicting the company will post "new company highs for home closings, revenues and earnings."

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