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M.D.C. Blows by Targets

The company says it is 'well positioned' to add to earnings in 2006.
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M.D.C. Holdings

(MDC) - Get M.D.C. Holdings, Inc. Report

beat Wall Street's fourth-quarter earnings expectations and guided toward a 2006 gain, while pledging to pull out of Texas.

The news comes less than two weeks after the Denver-based company became the latest homebuilder to post a drop in fourth-quarter orders as investors brace for a cooling-off period in the red-hot housing market.

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For the quarter ended Dec. 31, M.D.C. made $198 million, or $4.29 a share, up from the year-ago $143 million, or $3.17 a share. Revenue rose 29% from a year ago to $1.7 billion. Analysts surveyed by Thomson First Call had been forecasting a $4.01-a-share profit on sales of $1.68 billion.

"We are pleased to announce our 10th consecutive year of earnings growth, which we concluded with the strongest quarterly results of our 34 years in business," said CEO Larry A. Mizel. "The successful execution of our business model enabled us to produce exceptional returns in 2005, including after-tax returns on average equity and assets of 31% and 16%, respectively. At the same time, we continued to maintain a strong financial position, as represented by our year-end ratio of homebuilding and corporate debt-to-capital, net of cash, of .28, which ranks among the best in the homebuilding industry. In addition, we ended the year with over $1.2 billion in available cash and borrowing capacity, more than at any other time in our history."

Home gross margins were hit by the greater mix of homes closed in California, where gross margins were below the company average. Still, fourth quarter homebuilding operating margins were higher than margins in both the 2005 third quarter and the 2004 fourth quarter. Lower selling, general and administrative expenses as a percentage of revenues, resulting from the increased revenue production in most of our long-standing and newer markets, was the primary driver of these improved operating margins, M.D.C. said.

The company said it believes that the overall demand for new homes in most markets remains strong, as evidenced by the year-over-year increase in the sales value of our home orders. M.D.C. said it is reallocating capital from Texas to investment opportunities in other markets where it expects to generate higher risk-adjusted returns. "We are continuing to build on or sell the lots we control in Texas, which we anticipate we will complete by the fall of 2006," the company said. "However, we currently have no plans to enter into new contracts for the acquisition of additional land in this market."

The company made $10.99 a share for all of 2005 and said it is "well-positioned for higher revenues, home closings and net income in 2006." Analysts surveyed by Thomson First Call are expecting a 2006 profit of $11.75 a share.