Dismal 3Q for Meritage Homes

Meritage Homes Corporation (MTH - Snapshot Report) reported a net loss of $3.24 million or 10 cents per share for the third quarter of 2011 compared with a net income of $1.22 million or 4 cents per share in the prior-year quarter. Reported loss per share was significantly lower than the Zacks Consensus Estimate of an income of 7 cents per share.

Pre-tax loss in the quarter came in at $3.08 million and included charges of $1.05 million related to real estate and joint venture impairments compared with the year-ago pre-tax income of $731,000 including similar charges of $792,000. Excluding these items, adjusted pre-tax loss was $2.04 million compared with adjusted pre-tax income of $1.52 million in the third quarter of 2010.

Total revenue dropped 7.0% year over year to $217.5 million due to poor home closings during the quarter. The company closed 840 homes in the quarter compared with 848 homes in the corresponding quarter of 2010, mainly on the back of an unfavorable geographic mix.

Net sales orders, however, climbed 28% to 906 units from 706 units in the year-ago period, reflecting sales order gains across all states except Nevada. Sales order value increased 34%, driven by 28% higher orders and a 4% increase in average sales price. Cancellation rate in the quarter also improved to 17% of gross sales versus 24% in the prior-year quarter.

Homebuilding gross margin was 17.5% compared with 18.2% in the year-ago quarter. Consequently, adjusted gross margin, excluding impairments, decreased to 17.9% from 18.5% in the year-ago quarter.

Meritage’s total actively selling communities stood at 149 at the end of September 2011 compared with 150 at the end of September 2010. Average sales per community improved to 6.2 in the quarter versus 4.7 in the prior-year quarter. Backlog improved to 1,060 homes with a total value of $288.5 million at September 30, 2011 from 902 homes, valuing at $242.4 million a year ago.

The company had cash and cash equivalents, restricted cash, investment and securities of $357.2 million as of September 30, 2011 compared with $412.6 million as of December 31, 2010. Net debt stood at $249.0 million at the end of the third quarter of 2011 versus $193.1 million at the end of the fourth quarter of 2010. Net debt to total capital ratio was 33.4% at September 30, 2011 compared with 27.9% at December 31, 2010.

Based in Scottsdale, Arizona, Meritage Homes Corporation, which holds a Zacks #4 Rank (Sell rating) stock, builds single-family homes for a broad range of homebuyers. The company also provides residential financial services including mortgage origination services for its homebuyers. Meritage’s key competitors include Lennar Corp. (LEN - Analyst Report), KB Home (KBH - Analyst Report) and DR Horton Inc. (DHI - Analyst Report).

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