Here's What to Expect From Meritage Homes' (MTH) Q3 Earnings
Meritage Homes Corporation MTH is set to report third-quarter 2023 results on Oct 31, after market close.
In the last reported quarter, the company’s earnings and Homebuilding revenues topped the Zacks Consensus Estimate by 43.8% and 19.5%, respectively. Although earnings declined 26% year over year, Homebuilding revenues increased 11%.
Meritage Homes’ earnings topped the consensus mark in 20 of the trailing 21 quarters.
Trend in Estimate Revision
The Zacks Consensus Estimate for third-quarter 2023 earnings per share has decreased to $5.10 from $5.11 over the past 30 days. The estimated figure indicates a 28.2% decline from the year-ago quarter’s reported value.
Meritage Homes Corporation Price and EPS Surprise
Meritage Homes Corporation price-eps-surprise | Meritage Homes Corporation Quote
For Homebuilding revenues, the consensus mark is pegged at $1.55 billion, suggesting a decline of 1.8% from the year-ago quarter’s reported figure.
Key Factors to Note
Revenues
Meritage Homes’ third-quarter Homebuilding revenues (accounted for 99.6% of total revenues in 2022) are expected to have declined year over year due to softness in the housing market and continued economic uncertainties.
The U.S. housing market has been navigating through a challenging time comprising rising mortgage rates, continued supply-chain issues, material cost inflation and higher wages. Higher mortgage rates and higher home prices have prompted moderation in housing demand.
Although total home closing revenues are expected to have been lower year-over-year, MTH is expected to generate sequentially higher revenues on the back of solid demand for entry-level and first move-up homes, given the lack of existing homes for sales in the market.
Financial Services revenues (accounted for 0.4% of total revenues in 2022) are anticipated to have declined from the last year quarter’s level.
Segment-wise, for third-quarter 2023, our model predicts Homebuilding and Financial services revenues to decline 1% to $1.56 billion and 11.3% to $5.6 million, respectively, year over year.
Owing to the soft housing demand scenario, driven by persisting economic challenges, the company expects home closing to range within 3,300-3,600 units in the to-be-reported quarter, down 1.1% year over year considering the mid-point. Also, home closing revenues are anticipated to be within $1.46 -$1.60 billion, down 2.5% year over year considering the mid-point.
We expect home closing units to increase 0.3% year over year to 3,497 units but revenues to decrease 1.2% to $1.55 billion. We expect home closing average selling price (ASP) to be $443,240, down 1.5% year over year.
Geographically, we expect home closing ASP in West, Central and East regions to decline 1.1% year over year to $537,270, 0.1% to $409,970 and 0.7% to $402,400, respectively.
However, we expect land closing revenues to increase 32.9% year over year to $11.9 million.
Margins
For the third quarter, earnings of MTH are likely to have been affected by raw material inflation and higher labor costs. These costs are expected to have negatively impacted the company’s operations and hurt margins in the to-be-reported quarter.
However, increased focus on solid spec strategy and performance-driving initiatives will partly help the company to offset the headwinds.
Owing to the headwinds above, the company expects diluted earnings per share to be within $4.80-$5.29, down from the last-year quarter’s reported value of $7.10 per share. Furthermore, the company expects the home closing gross margin to be around 24.5%, reflecting a decline from the prior year’s value of 28.7%.
We expect home closing gross margin to decline 400 basis points to 24.7%, year over year.
Backlogs and Home Orders
Owing to the aforementioned economic uncertainties, for third-quarter 2023, we expect the total backlog to decline 39.4% to 3,674 units and the total backlog value to fall by 41.7% year over year to $1.65 billion.
Geographically, we expect home orders in the West, Central and East regions to increase 108.4% to 950 units, 60.7% to 1,021 units and 17.2% to 1,428 units, respectively, year over year.
What the Zacks Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for Meritage Homes this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: MTH has an Earnings ESP of -2.76%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Stocks With Favorable Combination
Here are some companies in the Zacks Construction sector that, according to our model, have the right combination of elements to post an earnings beat on their respective quarters to be reported.
Louisiana-Pacific Corporation LPX has an Earnings ESP of +2.07% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
LPX’s earnings topped the consensus mark in three of the last four quarters and missed on one occasion, with an average of 95.8%. Earnings for the to-be-reported quarter are expected to decline 19.2% year over year.
Construction Partners, Inc. ROAD has an Earnings ESP of +2.91% and sports a Zacks Rank #1.
ROAD’s earnings topped the consensus mark in three of the last four quarters, with the average being 10.6%. Earnings for the to-be-reported quarter are expected to rise 108% year over year.
Dycom Industries DY has an Earnings ESP of +1.24% and sports a Zacks Rank #1.
DY’s earnings topped the consensus mark in all the last four quarters, the average being 147.4%. Earnings for the to-be-reported quarter are expected to increase 4.7% year over year.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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