NVR Inc. Delivers Mixed Results in Q2

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NVR reported second-quarter financial results that reflected a continued improving environment for all homebuilders. NVR reported a slight acceleration in yearover- year revenue growth this quarter, with 31% improvement versus 28% last quarter. New order units and backlog unit growth also accelerated to 26% (from 11%) and 31% from (27%).

Homebuilding adjusted operating margins were a bit disappointing given the significant topline improvement, expanding by 30 basis points from yearago levels to 7.8%. It is unclear why margins did not expand further, but we believe it could be due to higher lumber and labor prices flowing through cost of goods sold. GAAP EPS expanded by just 13% but normalizing for tax rate, adjusted EPS expanded by 31% to $9.76.

Details were sparse because NVR doesn’t hold quarterly conference calls and does not release its more informative 10-Q filing until a week or two after earnings, but we were encouraged by a couple of items this quarter. First, we noticed that the value of unsold lots and housing units and land under development inventory line items fell sequentially. We are watching this closely to be sure that NVR is willing and able to maintain its land light business model.

More capital-intensive raw land purchases and joint venture investments grew to constitute 15% of total controlled housing lots over the past two years, but it appears this has leveled off, at least for now. Second, we were pleased to see NVR buy back a substantial amount of stock in the quarter. The firm repurchased 300,000 shares for $983 per share, an accretive move, in our opinion, given our fair value estimate is greater than the price paid. NVR’s last big chunk of shares was purchased last August (224,000 for $803.64 per share). The large share repurchases reinforce the notion that the company is committed to return cash to shareholders; NVR has used 89% of free cash flows during the last 11 years to buy back stock.

 

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