Homebuilder MDC Holdings (NYSE:MDC) will hammer out first-quarter 2007 financial results on April 26.

What analysts say:

  • Buy, sell, or waffle? Analysts are certainly making themselves feel at home, with six of the eight who cover the Motley Fool Hidden Gems recommendation rating it a buy. The other two say hold.
  • Revenues. Despite the heady feelings, revenues are expected to be off 42% from last year, down to $656.4 million.
  • Earnings. Profits as well are expected to swing to a loss of $0.31 per share, well off from the $2.08-per-share profit posted last year.

What management says:
Amidst the current housing slump, a lot of builders are reeling from having to write off huge chunks of inventory. While the write-offs will allow them to restore profitability sooner, the magnitude of some of the markdowns has been staggering. Hovnanian (NYSE:HOV) wrote off hundreds of millions of dollars' worth of inventory in December. In comparison, MDC also had to mark down $91 million worth of inventory last quarter, with more than 80% of it in the west. So we might expect to see some further write-offs again this quarter, probably on a much smaller scale and perhaps more geographically diverse. It should also signal an easing of the slump for MDC, though not necessarily for the rest of the industry.

Chairman and CEO Larry Mizel has even noted that MDC wants to go shopping again: "We have been and will be communicating to land sellers in all of our markets that we are ready to acquire attractively priced land assets." MDC has always looked to be one of the more financially stable builders, and this might just prove the point.

What management does:
It's said that a rising tide lifts all boats. But when the tide is running out on an industry, it lowers those boats, too. So although MDC has been less affected by the housing bubble's puncture, it certainly hasn't been unaffected. With markdowns necessary and the use of incentives required to keep buyers on track till closing, margins have deteriorated significantly over time.

Margin

12/05

03/06

06/06

09/06

12/06

Gross

29.7%

29.3%

28.1%

26.8%

23.9%

Operating

16.7%

16.5%

15.2%

13.7%

9.7%

Net

10.3%

10.1%

9.3%

8.0%

4.5%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
By clearing the decks early, homebuilders have improved their chances for an earlier turnaround than might have been anticipated. As fellow Fool Emil Lee highlighted last quarter, MDC Holdings reduced its risk exposure by decreasing the percentage of lots controlled and shrinking its land options to a "minuscule" $35 million. Some $400 million in operating cash flows helped infuse its balance sheet with cash and served to reduce its debt-to-capital ratio to a percentage far lower than those at Centex (NYSE:CTX), KB Home (NYSE:KBH), and Pulte (NYSE:PHM).

While there is still consternation over the condition of housing, certain builders are better positioned to come back stronger in a shorter amount of time. I'd warrant that MDC Holdings' earnings report will offer a bit of a surprise even if year-over-year earnings won't improve until next year.

Related Foolishness:

MDC Holdings has earned a two-star rating from Motley Fool CAPS, the new investor-intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.