Can't Cut Those Cancellations at MDC

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There are several things that have to occur before the homebuilders will be able to move forward toward generating earnings again. Obviously, one of the more important hurdles that must be crossed will involve a reduction in impairment charges.

MDC Holdings (NYSE: MDC) inched its way in the right direction during the most recent quarter, cutting its losses to $72.8 million, or $1.58 per share. Those numbers compared to a loss of $94.4 million, or $2.07, in the same quarter of the prior year. Revenues were down 45% to $406.1 million. The analysts who follow the company had been expecting a loss of $0.73 a share (excluding one-time items), indicating yet again that some companies and some industries are immune to accurate forecasting, particularly on a per-share level.

A salient aspect of the company's results was a set of impairment charges that dropped to $54.8 million, from $141.4 million in the March-ending quarter of 2007. So MDC might be en route to scaling that hurdle of cutting its one-time charges to a manageable basis.

The company generated orders in the quarter, net of cancellations, for 1,098 homes valued at about $324.0 million. But as a key indication that the industry is still in a quagmire, MDC's order cancellation rate increased to 43%, versus 35% for the same period a year ago.

With most of the big builders today in survival and balance sheet-strengthening mode, it's important to point out that MDC now has about $1.2 billion in cash on its balance sheet, along with no borrowings outstanding on its $1.25 billion line of credit.

MDC's release of its quarterly results comes immediately behind similar releases by Pulte (NYSE: PHM) and Ryland (NYSE: RYL) -- both of which, of course, recorded losses. It also precedes the likes of Centex (NYSE: CTX) and Beazer (NYSE: BZH), which are waiting in the wings to tell us about their quarters. And while MDC is clearly making progress as it relates to lower impairment charges, for my money, the company's escalating cancellation rate is proof positive that housing will continue to slide along on its bottom for some time to come.

For related Foolishness:

• The Housing Roundup
• MDC's Demented Compensation Proposals
• The Radical Run in Residential Construction