Executives Cashing In Shares At NVR

By Kim Hart
Washington Post Staff Writer
Wednesday, June 6, 2007

Home builder NVR has managed to keep its stock price moving toward an all-time high in recent months despite troubles in the mortgage industry and the falling sales prices that have crippled builders across the country.

The Reston company has employed several strategies to cushion itself against hard times, including an aggressive program to buy back stock from its shareholders. Such buybacks tend to boost the stock price by reducing the number of common shares on the market, which can benefit the sellers while also raising earnings per share.

Companies sometimes use such buyback programs as a way to show confidence in the stock's future earning potential.

NVR's move comes as top executives are ditching their own shares by the thousands, a sell-off that has attracted notice among some analysts and industry experts.

"I think it indicates that [executives] think it's the peak of the stock for quite some time," said Jack Adamo, who edits a weekly independent newsletter that follows insider transactions. "Somewhere over the last couple of months, they decided they wanted to bail."

"You have to be a little concerned by some of the selling going on by the insiders," said Daniel T. Scalzi, an analyst who covers the company for Matrix USA in New York. "I don't think it's a huge red flag. There's no way of knowing why they're selling."

At the end of April, Dwight C. Schar, NVR's chairman and former chief executive, sold 259,193 shares in eight days. The shares were worth about $211 million and represented about 80 percent of his stake in the company that he could access. He still holds about $160 million in deferred-compensation stock that he would receive after he leaves the company. Schar agreed not to collect any salary and bonus for 2007 but said he would continue to abide by NVR's requirement that he hold on to shares valued at eight times his former $1.5 million salary, or $12 million.

Robert W. Henley, the company's controller, sold 4,250 shares April 24 for $3.3 million. The same day, chief executive Paul C. Saville sold 5,000 shares for $4.2 million. A few days later, William J. Inman, president of NVRM Finance, sold 12,500 shares for $10.3 million.

NVR did not return phone calls seeking comment on the sales. It has previously said in filings with the Securities and Exchange Commission that its buyback program is intended to help maximize shareholder value.

NVR, the parent of Ryan Homes, NVHomes, Fox Ridge Homes and Rymarc Homes, bought back 126,000 shares worth $86 million during the first three months of the year. Last year, the company bought back $287.1 million of its own shares, and in April, it announced its plan to repurchase an additional $300 million "from time to time" on the open market or in private transactions.

So far this year, the stock of the nation's seventh-largest home builder by revenue has gained 17 percent, while shares of its rivals have fallen: KB Home by 9 percent; Centex, 15 percent; and Pulte Homes, 18 percent. A year ago, near the peak of the housing bubble, NVR's stock traded at about $590 a share. NVR closed yesterday at $755 per share, down $6, or 0.8 percent.. NVR's 52-week high is $851.96.

Like other builders, NVR has been dinged by the weakened housing market. For the first three months of the year, NVR reported a profit of $84.8 million, down 36 percent from the corresponding period a year ago. Revenue fell 9 percent, to $1.1 billion.

"Gross profit margins have been negatively impacted by the pricing pressures created by market conditions, which began to erode in the second half of 2005 and . . . continued to be challenging through the first quarter of 2006," the company said in its latest quarterly report.

NVR's profit from building homes in the mid-Atlantic region, which includes Virginia, Maryland, West Virginia and Delaware, accounts for 72 percent of its total home-building profit. For the region, net income fell 45 percent compared with the first quarter of 2006. Profit from the Northeast region, including New Jersey and eastern Pennsylvania, fell 65 percent, the company's quarterly report said.

NVR has fared better than other home builders partly because it does not have a large stake in the most severely hit markets of Florida and California, analysts said. The company also does not have much money tied up in land development, nor does it buy land on speculation. NVR often buys land after roads have been made and property lots have been plotted.

"Historically, they manage their capital well," Scalzi said.

Staff researcher Richard Drezen contributed to this report.

© 2007 The Washington Post Company