Meritage Homes (MTH) Q3 Earnings Beat, Orders Up, Backlog Falls
Meritage Homes Corporation MTH reported better-than-expected results for third-quarter 2023. Both earnings and total closing revenues surpassed the Zacks Consensus Estimate.
Although earnings declined from the year-ago quarter’s levels, revenues improved as the company continued to offer a full range of incentives to help buyers solve for a monthly payment. Despite the elevated interest rate environment, the ongoing shortage of existing home inventory for sale and a housing need for millennials and baby boomers boosted demand.
Management recorded 96% backlog conversion as well as the highest third quarter of home closings and home closing revenues during the quarter on improved cycle time and its spec-building strategy.
The stock rose by 2.11% in the after-hours trading session on Oct 31.
Earnings & Revenue Discussion
Earnings of $5.98 per share topped the Zacks Consensus Estimate of $5.10 by 17.3% but declined 16% year over year from $7.10 posted a year ago. The decline mainly stemmed from a lower gross margin, greater overhead costs and a higher tax rate.
Meritage Homes Corporation Price, Consensus and EPS Surprise
Meritage Homes Corporation price-consensus-eps-surprise-chart | Meritage Homes Corporation Quote
Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.62 billion compared with $1.58 billion reported in the year-ago period.
Segment Discussion
Homebuilding: Total closing revenues were $1,613.1 million, up 2% from the prior-year quarter’s level. The metric beat the consensus mark of $1,550 million by 4.1%.
Under the Homebuilding umbrella, home closing revenues totaled $1,610.3 million, up 3% from the prior-year quarter’s level of $1,569 million, backed by improving housing demand and cycle times. Land closing revenues amounted to $2.78 million, significantly down from $9 million reported in the year-ago quarter.
MTH reported 3,638 units of homes closed, up 4% from 3,487 units year over year. The average sales price (“ASP”) was 2% lower from a year ago to $443,000 due to more costly financing incentives. Our estimate for the metric was 2,937 units for $437,670 ASP.
Total home orders rose 50% from the prior year to 3,474 homes. In dollars, home orders increased 53% year over year to $1.5 billion on a 2% higher ASP of $430,000. We estimated home orders to be down 8.2% year over year. Average absorptions per store was 4.1 per month, up 52% from 2.7 per month in the previous year. However, the average community count declined by 3% year over year.
Entry-level buyers represented 88% of sales orders for the current as well as the year-ago period.
The quarter-end backlog totaled 3,608 units, down 41% year over year. The value of the backlog also decreased by 45% year over year to $1.56 billion.
Adjusted home closing gross margin contracted by 200 basis points (bps) to 26.7% due to the higher financing incentives, partially offset by savings from shortening cycle times.
Selling, general and administrative expenses — as a percentage of home closing revenues — increased 200 bps to 10.1% from the prior-year quarter due to higher broker commissions and increased compensation costs.
Financial Services: The segment’s revenues fell 3% from the prior-year quarter’s level to $6.11 million.
Balance Sheet
At the end of third-quarter 2023, cash and cash equivalents totaled $1 billion compared with $861.6 million on Dec 31, 2022. At the end of Sep 2023, 60,700 lots were owned or controlled by the company compared with 66,000 lots a year ago.
Total debt to capital was 18.5% compared with 22.6% at 2022-end. Net debt to capital was negative 1% versus 6.8% on Dec 31, 2022.
Net cash provided by operating activities for the first nine months of 2023 was $355.9 million versus net cash used in operating activities of $206.8 million a year ago.
MTH repurchased 413,013 shares of its common stock for $55 million during the first nine months. As of Sep 30, 2023, $189.1 million shares remained under the authorized share repurchase program.
Q4 Outlook
MTH expects housing demand to remain steady in the near future. Also, it plans to continue to invest in land inventory and steadily increase its community count over the next few years.
MTH projects 3,500-3,700 home closings for fourth-quarter 2023, which is likely to generate home closing revenues of $1.45-1.53 billion. Home closing gross margin is expected to be in the 25-26% range. It expects earnings to be within $4.84-5.43 per share. It estimates an effective tax rate of 23%.
Zacks Rank & Peer Releases
Meritage Homes currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
M.D.C. Holdings, Inc. MDC reported mixed third-quarter 2023 results, wherein earnings topped the Zacks Consensus Estimate while revenues missed the same. Moreover, both metrics declined year over year.
MDC’s uptrend can be attributable to the current new home market, which continues to benefit from the lack of existing home supply. The company witnessed notable improvements in its net new orders, driven by a significant decline in cancellations and its use of financing incentives, which are aimed at reducing the negative impact of higher mortgage rates for its buyers. Given the ongoing market scenario, the company aims to increase its land acquisition efforts and improve its market share position.
PulteGroup Inc. PHM reported mixed results in third-quarter 2023, wherein earnings surpassed the Zacks Consensus Estimates, but revenues missed the same. Both metrics increased year over year. The company has been banking on a solid operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
Backed by its disciplined and balanced business model, the company witnessed solid orders in the reported quarter and posted a 12-month return on equity of 30.1%.
NVR, Inc. NVR reported mixed third-quarter 2023 results, with earnings surpassing the Zacks Consensus Estimate and Homebuilding revenues missing the same. Although the top line increased on a year-over-year basis, the bottom line declined due to softened housing demand and macroeconomic woes.
NVR reported earnings of $125.26 per share, which topped the consensus mark of $112.79 by 11.1%. The reported figure increased by 5.7% from the prior-year quarter’s figure of $118.51 per share.
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