SCOTTSDALE, Ariz., Oct. 22, 2019 (GLOBE NEWSWIRE) — Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported third quarter results for the period ended September 30, 2019.
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)MANAGEMENT COMMENTS
“Our results for the third quarter demonstrated continued strong demand for our homes, as well as the impact of operating efficiencies that are enabling us to improve our margins while selling homes at affordable prices,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “Our total orders for new homes increased 24% year-over-year in the third quarter, as a result of higher absorptions on slightly lower community count.
“We’re clearly in the sweet spot of the market with our LiVE.NOW.® homes for value-conscious buyers,” he explained. “Those homes are selling at a significantly higher pace than move-up homes and made up 54% of our third quarter orders, compared to 43% a year ago.
“In addition to our success with LiVE.NOW. in the entry-level market, our first move-up business is also doing well. We have nearly completed the roll-out of our new Studio M design centers, which have been very well received by our move-up buyers,” he continued. “The new studios are benefiting both our margins and overhead leverage by providing additional revenue at a reduced cost due to streamlining and simplifying our operations. The combination of revenue growth and improved operating margin drove a 29% increase in our net earnings for the third quarter.”
Mr. Hilton concluded, “We are confident in our strategy and execution, and are encouraged by healthy employment levels in the U.S., growing household incomes and low interest rates, which are allowing more people to own their own homes. Based on our results in the first three quarters of 2019, we are projecting 8,900-9,100 total home closings for the year, generating approximately $3.5 billion of total home closing revenue with home closing gross margin in the mid to high-18’s percent range for the year, which should translate to approximately $5.50-5.70 in diluted earnings per share.”THIRD QUARTER RESULTS
Total orders for the third quarter of 2019 increased 24% year-over-year, driven by a 27% year-over-year increase in absorptions, primarily due to higher demand for Meritage’s entry-level priced LiVE.NOW. product.  Absorptions were up 29% in the West, 26% in the Central and 23% in the East region, demonstrating broad strength across all regions. As a result of the Company’s strategic product shift, average sales price (ASP) on orders was 3% lower year-over-year.Net earnings was $69.8 million ($1.79 per diluted share) for the third quarter of 2019, compared to $54.1 million ($1.33 per diluted share) for the third quarter of 2018. The 35% increase in diluted EPS reflected the combination of increases in home closing revenue, gross margins and greater overhead leverage, in addition to a 4% reduction in diluted shares after share repurchases in the fourth quarter of 2018 and first quarter of 2019. Third quarter 2019 pre-tax earnings increased 180 bps to 9.8% compared to 8.0% in 2018.The 7% increase in home closing revenue for the quarter reflected a 12% increase in home closing volume, which was partially offset by a 4% reduction in ASP due to the shift in product mix, compared to the third quarter of 2018. The East region led with home closing revenue up 15% year-over-year, followed by a 9% increase in the Central region, while closing revenue in the West was flat.Home closing gross margin improved 170 bps to 19.8% from 18.1% a year ago, contributing to a 17% increase in total home closing gross profit over the prior year’s third quarter. Third quarter 2018 gross margin was reduced by 30 bps due to a $2.6 million impairment from exiting a move-up community that was no longer aligned with the company’s strategy.Selling, general and administrative expenses (SG&A) totaled 10.7% of third quarter 2019 home closing revenue, compared to 11.0% in the third quarter of 2018.Interest expense increased $1.0 million year-over-year, as less interest was capitalizable to assets under development due to shortened construction cycles and higher inventory turnover.YEAR TO DATE RESULTSNet earnings for the first nine months of 2019 was $146.0 million, compared to $151.8 million in 2018. Increases in home closing revenue and gross margin year-to-date in 2019 were offset by higher interest expense and lower other income than the prior year, which benefited from a favorable legal settlement, as well as a lower effective tax rate in 2018.Home closings for the first nine months of the year were up 7% over 2018, while average prices on closings were down 6% from the previous year due to the product mix shift toward more affordable homes, resulting in a 1% increase in total home closing revenue.Home closing gross margin increased to 18.5% for the first three-quarters of 2019 over 17.8% in the same period last year, driving a 4% increase in total home closing gross profit for the first nine months of 2019.SG&A expenses as a percentage of home closing revenue year-to-date were 11.3% in 2019, compared to 11.1% in 2018, reflecting higher brokerage commissions, severance expenses and equity compensation expense accelerated into the first quarter of 2019 as a result of changes in tax rules.Interest expense increased $8.1 million year-over-year, primarily due to less interest capitalized to assets under development from faster construction cycle times.Other income (net) decreased by $4.1 million in 2019 primarily due to a $4.8 million favorable legal settlement in the first quarter of 2018 related to a previous joint venture in Nevada.The effective tax rate for the first nine months of 2019 was 24%, compared to 21% for the first nine months of 2018, due to $6.3 million of energy tax credits recorded in the first quarter of 2018 for homes closed in 2017 that qualified for the credits. BALANCE SHEETCash and cash equivalents at September 30, 2019 totaled $454.8 million, compared to $311.5 million at December 31, 2018, reflecting positive cash flow from operations. Real estate assets grew $111.3 million year-to-date to approximately $2.9 billion at September 30, 2019 to support further growth.Meritage ended the third quarter of 2019 with 37,300 total lots owned or under control, compared to approximately 34,400 total lots at September 30, 2018. Approximately 81% of the lots added year-to-date 2019 were in LiVE.NOW. communities for entry-level homes.Debt-to-capital ratios decreased to 41.1% at September 30, 2019 from 43.2% at December 31, 2018, with further improvement year-to-date in the net debt-to-capital ratio of 31.3% from 36.7% at year-end 2018.CONFERENCE CALLManagement will host a conference call to discuss the results at 7:30 a.m. Arizona Time (10:30 a.m. Eastern Time) on Wednesday, October 23. The call will be webcast with an accompanying slideshow available on the “Investor Relations” page of the Company’s web site at http://investors.meritagehomes.com. Telephone participants can avoid delays by pre-registering for the call using the following link to receive a special dial-in number and PIN.
Conference Call registration link: http://dpregister.com/10134822.
Telephone participants who are unable to pre-register may dial into 1-866-226-4948 US toll free on the day of the call. International dial-in number is 1-412-902-4125 or 1-855-669-9657 toll free for Canada.
A replay of the call will be available beginning at approximately 12:00 p.m. ET on October 23 and extending through November 6, 2019, on the website noted above or by dialing 1-877-344-7529 US toll free, 1-412-317-0088 for international or 1-855-669-9658 toll free for Canada, and referencing conference number 10134822.
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About Meritage Homes Corporation
Meritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2018. Meritage offers a variety of homes that are designed with a focus on first-time and first move-up buyers in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.
The Company has designed and built over 120,000 homes in its 34-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage is the industry leader in energy-efficient homebuilding and has received the U.S. Environmental Protection Agency’s ENERGY STAR® Partner of the Year for Sustained Excellence Award every year since 2013 for innovation and industry leadership in energy efficient homebuilding.
For more information, visit www.meritagehomes.com.
The information included in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management’s projected home closings, home closing revenue, home closing gross margin and diluted earnings per share for the full year 2019.
Such statements are based on the current beliefs and expectations of Company management, and current market conditions, which are subject to significant uncertainties and fluctuations. Actual results may differ from those set forth in the forward-looking statements. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events or changes in these expectations, except as required by law. Meritage’s business is subject to a number of risks and uncertainties. As a result of those risks and uncertainties, the Company’s stock and note prices may fluctuate dramatically. These risks and uncertainties include, but are not limited to, the following: changes in interest rates and the availability and pricing of residential mortgages; legislation related to tariffs; the availability and cost of finished lots and undeveloped land; shortages in the availability and cost of labor; the success of strategic initiatives; the ability of our potential buyers to sell their existing homes; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slow absorption rates; impairments of our real estate inventory; cancellation rates; competition; changes in tax laws that adversely impact us or our homebuyers; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest or option deposits; our potential exposure to and impacts from natural disasters or severe weather conditions; home warranty and construction defect claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance and surety bonds in connection with our development work; the loss of key personnel; failure to comply with laws and regulations; our limited geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing if our credit ratings are downgraded; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations, the effect of legislative and other governmental actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our energy-efficient technologies by our competitors; our exposure to information technology failures and security breaches; negative publicity that affects our reputation and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2018 and our Form 10-Q for the quarter ended June 30, 2019 under the caption “Risk Factors,” which can be found on our website at www.investors.meritagehomes.com. 
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