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Homebuilder NVR (NYSE:NVR) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 9% year on year to $2.55 billion. It made a GAAP profit of $120.69 per share, improving from its profit of $116.54 per share in the same quarter last year.
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NVR (NVR) Q2 CY2024 Highlights:
- Revenue: $2.55 billion vs analyst estimates of $2.55 billion (small beat)
- EPS: $120.69 vs analyst expectations of $121.85 (in line)
- Gross Margin (GAAP): 23.6%, down from 25.2% in the same quarter last year
- Market Capitalization: $27.07 billion
Home BuildersTraditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Regrettably, NVR's sales grew at a mediocre 6.1% compounded annual growth rate over the last five years. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. NVR's recent history shows its demand slowed as its annualized revenue growth of 1.1% over the last two years is below its five-year trend.
This quarter, NVR grew its revenue by 9% year on year, and its $2.55 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6% over the next 12 months, a deceleration from this quarter.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
NVR has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.1%. This was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, NVR's annual operating margin rose by 5.9 percentage points over the last five years, showing its efficiency has significantly improved.
This quarter, NVR generated an operating profit margin of 19.4%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
NVR's EPS grew at an astounding 18.4% compounded annual growth rate over the last five years, higher than its 6.1% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into NVR's earnings to better understand the drivers of its performance. As we mentioned earlier, NVR's operating margin was flat this quarter but expanded by 5.9 percentage points over the last five years. On top of that, its share count shrank by 16.1%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For NVR, its two-year annual EPS growth of 7.9% was lower than its five-year trend. This wasn't great, but at least the company was successful in other parts of the business.
In Q2, NVR reported EPS at $120.69, up from $116.54 in the same quarter last year. This print was close to analysts' estimates. Over the next 12 months, Wall Street expects NVR to grow its earnings. Analysts are projecting its EPS of $483.93 in the last year to climb by 1.8% to $492.43.
Key Takeaways from NVR's Q2 Results This wasn't that notable of a quarter as its revenue and EPS were in line with analysts' estimates, showing the company is staying on track. The stock remained flat at $8,588 immediately after reporting.
